<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-13143
BJ'S WHOLESALE CLUB, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3360747
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Mercer Road
Natick, Massachusetts 01760
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (508) 651-7400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 31, 2000 was approximately $2,820,441,000 based on the
closing price of $38.375 on the New York Stock Exchange on such date.
There were 73,692,370 shares of the Registrant's Common Stock, $.01 par
value, outstanding as of March 31, 2000.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders (Part III).
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<PAGE>
PART I
Item 1. Business
General
BJ's Wholesale Club introduced the warehouse club concept to New England in
1984 and has since expanded in the eastern United States and the state of Ohio.
As of January 29, 2000, BJ's operated 107 warehouse clubs in 14 states and had
over 5.8 million members. The table below shows the number of BJ's locations by
state.
<TABLE>
<CAPTION>
Number of
State Locations
----- ---------
<S> <C>
New York........................................................... 26
New Jersey......................................................... 14
Massachusetts...................................................... 13
Pennsylvania....................................................... 10
Florida............................................................ 9
Connecticut........................................................ 7
Maryland........................................................... 6
Ohio............................................................... 6
Virginia........................................................... 6
New Hampshire...................................................... 4
Maine.............................................................. 2
Rhode Island....................................................... 2
Delaware........................................................... 1
North Carolina..................................................... 1
---
TOTAL............................................................ 107
===
</TABLE>
On July 28, 1997, BJ's Wholesale Club, Inc. ("BJ's" or the "Company") became
an independent, publicly owned entity when Waban Inc. ("Waban"), BJ's parent
company at the time, distributed to its stockholders on a pro rata basis all of
the Company's outstanding common stock. Before that date, BJ's business had
operated as a division of Waban.
The fiscal year ended January 29, 2000 is referred to as "1999" or "fiscal
1999" below. Other fiscal years are referred to in a similar manner.
Industry Overview
Warehouse clubs offer a narrow assortment of brand name food and general
merchandise items within a wide range of product categories. In order to
achieve high sales volumes and rapid inventory turnover, merchandise selections
are generally limited to items that are brand name leaders in their categories.
Since warehouse clubs sell a diversified selection of product categories, they
attract customers from a wide range of other wholesale and retail distribution
channels, such as supermarkets, supercenters, department stores, drug stores,
discount stores, office supply stores, consumer electronics stores, automotive
stores and wholesale distributors. The Company believes that it is difficult
for these higher cost channels of distribution to match the low prices offered
by warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-step distribution channels by purchasing full
truckloads of merchandise directly from manufacturers and by storing
merchandise on the sales floor rather than in central warehouses. By operating
no-frills, self-service warehouse facilities, warehouse clubs have fixturing
and operating costs substantially below those of traditional retailers. Because
of their higher sales volumes and rapid inventory turnover, warehouse clubs
generate cash
2
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from the sale of a large portion of their inventory before they are required to
pay merchandise vendors. As a result, a greater percentage of the inventory is
financed through vendor payment terms than by working capital. Two broad groups
of customers, individual households and small businesses, have been attracted
to the savings made possible by the high sales volumes and operating
efficiencies achieved by warehouse clubs. Customers at warehouse clubs are
generally limited to members who pay an annual fee.
Business Model
The Company has developed an operating model that it believes differentiates
it from its warehouse club competition. First, BJ's seeks to establish and
maintain the leading industry position in each market where it operates.
Second, by clustering its clubs, BJ's achieves the benefit of name recognition
and maximizes the efficiencies of management support, distribution and
marketing activities. Finally, BJ's places added focus on the retail customer,
its Inner Circle(R) member, through merchandising strategies that emphasize a
customer-friendly shopping experience. BJ's creates an exciting shopping
experience for its members with a constantly changing mix of food and general
merchandise items and carries a broader product assortment than its warehouse
club competitors. By supplementing the warehouse format with aisle markers,
express check-out lanes and low-cost video-based sales aids, BJ's makes
shopping more efficient for its members. BJ's is also the only major warehouse
club operator to accept manufacturers' coupons, which provides added value for
its members, and to accept VISA(R), MasterCard(R) and Discover(R) payment cards
chainwide. In 2000, BJ's plans to equip its clubs to process on-line debit
transactions. Management believes these strategies aimed at the general
consumer allow BJ's to achieve higher warehouse club operating margins than its
warehouse club competitors.
Expansion
Since the beginning of 1994, BJ's has grown from 52 clubs to 107 clubs in
operation at January 29, 2000. Approximately 53% of BJ's clubs have been in
operation for fewer than six years, and many of these are considered to be in
the early stages of maturation.
BJ's plans to open approximately ten to eleven new clubs and relocate one
club in the current year, expanding its presence in the Carolinas, Florida, and
Ohio and continuing to fill in existing markets. Longer term, BJ's plans to
increase the square footage of the chain by an average of 10% annually.
<TABLE>
<CAPTION>
Clubs Clubs Clubs Clubs
in Operation Opened Closed in Operation
at Beginning During During at End
Year of Year the Year the Year of Year
---- ------------ -------- -------- ------------
<S> <C> <C> <C> <C>
1994............................. 52 11 1 62
1995............................. 62 9 -- 71
1996............................. 71 10 -- 81
1997............................. 81 4 1 84
1998............................. 84 12 -- 96
1999............................. 96 11 -- 107
</TABLE>
Store Profile
As of January 29, 2000, BJ's operated 93 traditional size "big box"
warehouse clubs that averaged approximately 112,000 square feet and 14 smaller
format warehouse clubs that averaged approximately 69,000 square feet. The
smaller format clubs are designed to serve markets whose population is not
sufficient to support a full-sized warehouse club. Including space for parking,
a typical full-sized BJ's club requires nine to eleven acres of land. The
smaller version typically requires approximately eight acres. BJ's clubs are
located in both free-standing locations and shopping centers.
Construction and site development costs for a full-sized BJ's club average
approximately $5.5 million. Land acquisition costs for a club generally range
from $3.0 million to $5.5 million, but can be significantly
3
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higher in some locations. BJ's also invests approximately $2.6 million for
fixtures and equipment and $2 million for inventory (net of accounts payable),
and incurs approximately $.8 million for preopening costs in a new full-sized
club.
Merchandising
BJ's services its existing members and attracts new members by providing a
broad range of high quality, brand name merchandise at everyday prices that are
consistently lower than the prices of traditional wholesalers, discount
retailers, supermarkets, supercenters and specialty retail operations. BJ's
limits the items offered in each product line to fast selling styles, sizes and
colors, carrying an average of approximately 6,000 active stock-keeping units
(SKU's). By contrast, supermarkets normally stock approximately 25,000 SKU's,
and discount stores typically stock up to 60,000 SKU's. BJ's works closely with
manufacturers to develop packaging and sizes which are best suited to selling
through the warehouse club format in order to minimize handling costs and to
provide increased value to members.
In 1999, food accounted for approximately 59% of BJ's sales. The remaining
41% consisted of a wide variety of general merchandise items. Food categories
at BJ's include frozen foods, fresh meat and dairy products, dry grocery items,
fresh produce and flowers, canned goods, and household paper products and
cleaning supplies. General merchandise includes office supplies and equipment,
consumer electronics, small appliances, auto accessories, tires, jewelry,
housewares, health and beauty aids, computer software, books, greeting cards,
apparel, tools, toys and seasonal items.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, BJ's employs regional buyers who are responsible for tailoring the
product selection in individual warehouse clubs to the regional and ethnic
tastes of the local market.
BJ's expanded its private label program during 1999. Products are sold under
two labels: "Executive Choice(TM)" for products targeted to business members,
and "Berkley and Jensen(TM)" for products targeted to BJ's Inner Circle
members. BJ's private label products are premium quality only and generally are
priced 20% lower than the top branded competing product. Private label products
include paper towels, bath tissue, diapers, juices, frozen vegetables, cookies,
pet food, detergents, analgesics, vitamins and supplements, jeans, athletic
socks and luggage. BJ's expects its private label products to represent an
increasing percentage of total revenues over time.
BJ's also offers a number of specialty services that are designed to enable
members to complete more of their shopping at BJ's and to encourage more
frequent trips to the clubs. Most of these services are provided by outside
operators in space leased from BJ's. Specialty services include full-service
optical stores, food courts, some of which offer brand name fast food service,
one-hour photo service, a selection of garden sheds and gazebos, a propane tank
filling service, and a muffler and brake service operated in conjunction with
Monro Muffler/Brake and Speedy Auto Service, and Tuffy Automobile Service
Centers. A test of a mini-branch bank concept continues in three of BJ's clubs.
In addition, BJ's began marketing home and business alarm systems in 1999
through Protection One(R).
As of January 29, 2000, BJ's has opened gas stations at nineteen of its
clubs. The gas stations are self-service, relying on "pay at the pump"
technology that accepts MasterCard, VISA, Discover and debit card transactions.
Both regular and premium gas are available. BJ's has generally maintained its
price at 6 to 10 cents per gallon less than the average prices in each market.
Results to date have shown significant increases in sales and membership at
clubs with gas stations. BJ's plans to expand this service in 2000.
The Company's "BJ's Premier Benefits(TM)" program is designed to enhance the
value of BJ's membership, particularly to business members. Included in the
program are discounted payroll processing, payment processing of all major
credit cards, participation in an established preferred medical provider
network that provides comprehensive health care services at discounted rates,
local and long-distance phone and Internet
4
<PAGE>
access, rebates on the buying and selling of residential real estate, travel
services and printing of business forms, checks and signs. Participation in
Premier Benefits is open to all BJ's members and is included in the regular
cost of BJ's membership.
Membership
Paid membership is an essential part of the warehouse club concept. In
addition to providing a source of revenue which permits BJ's to offer low
prices, membership reinforces customer loyalty. BJ's has two types of members:
business members and Inner Circle members. BJ's Inner Circle members are likely
to be home owners who have incomes which are above the average for the
Company's trading areas. BJ's believes that a significant percentage of its
business members also shops BJ's actively for their personal needs. The Company
had over 5.8 million members (including supplemental cardholders) at January
29, 2000.
BJ's charges $35 per year for a primary Inner Circle membership that
includes one free supplemental membership. Members in the same household may
purchase additional supplemental memberships for $15 each. A business
membership also costs $35 per year and includes one free supplemental
membership. Additional supplemental business memberships cost $15 each. BJ's
membership is open to all, whereas the Company's wholesale club competitors
have typically required individual members to belong to certain qualifying
groups. BJ's believes that its more liberal membership policy has attracted
incremental sales without adversely affecting its costs.
Advertising and Public Relations
BJ's increases customer awareness of its warehouse clubs primarily through
direct mail, public relations efforts, new store marketing programs, and
limited vendor-funded television and radio advertising during the holiday
season. BJ's also employs dedicated marketing personnel who solicit potential
business members and who contact selected community groups to increase the
number of members. From time to time, BJ's runs free trial membership
promotions to attract new members, with the objective of converting them to
paid membership status, and also uses one-day passes to introduce non-members
to its warehouse clubs. These programs result in very low marketing expenses
compared with typical retailers.
Warehouse Club Operations
BJ's ability to achieve profitable operations depends upon high sales
volumes and the efficient operation of its warehouse clubs. The Company buys
most of its merchandise at volume discounts from manufacturers for shipment
either to a BJ's cross-docking facility or directly to BJ's clubs. This
eliminates many of the costs associated with traditional multiple-step
distribution channels, including distributors' commissions and the costs of
storing merchandise in central distribution facilities.
BJ's routes the majority of its purchases through cross-docking facilities
which break down truckload quantity shipments from manufacturers and reallocate
these goods for shipment to individual clubs, generally on a same-day basis.
BJ's efficient distribution systems result in better volume discounts, reduced
freight expenses and lower receiving costs.
The Company works closely with manufacturers to minimize the amount of
handling required once merchandise is received at a club. Most merchandise is
pre-marked by the manufacturer with the universal product code (UPC) so that it
does not require ticketing at the club. Merchandise for sale is displayed on
pallets containing large quantities of each item, thereby reducing labor
required for handling, stocking and restocking. Back-up merchandise is
generally stored in steel racks above the sales floor. BJ's goal is to keep at
least one day's supply of each item on the selling floor.
BJ's has been able to limit inventory losses to levels well below those
typical of other retailers by strictly controlling the exits of its clubs, by
generally limiting customers to members and by using state-of-the-art
electronic article surveillance technology. BJ's inventory shrinkage was less
than .20% of net sales in both 1998
5
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and 1999. Problems associated with payments by check have been insignificant,
as members who issue dishonored checks are restricted to cash-only terms. BJ's
policy is to accept returns of merchandise within 30 days after purchase.
In October 1995, BJ's became the first warehouse club chain to accept the
MasterCard credit card and in September 1997, became the first warehouse club
chain to accept VISA. Additionally, BJ's members may pay for their purchases by
cash, check or Discover Card. BJ's intends to equip its clubs to process on-
line debit transactions in 2000.
Information Systems
Over the course of its development, BJ's has made a significant investment
in information systems. BJ's was the first warehouse club operator to introduce
scanning devices which work in conjunction with its electronic point of sale
(EPOS) terminals and intends to roll out "360 degree" scanning at the checkout
stations in its clubs in 2000. Sales data is analyzed daily for replenishment
purposes. Detailed purchasing data on individual members permits the buying
staff and store managers to track changes in members' buying behavior. Detailed
shrinkage information by SKU by club allows management to quickly identify
inventory shrinkage problems and formulate effective action plans.
Competition
BJ's competes with a wide range of national, regional and local retailers
and wholesalers selling food or general merchandise in its markets, including
supermarkets, supercenters, general merchandise chains, specialty chains and
other warehouse clubs, some of which have significantly greater financial and
marketing resources than BJ's. Major competitors that operate warehouse clubs
include Costco Wholesale Corporation and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).
A large number of competitive membership warehouse clubs exists in BJ's
markets. Approximately 86% of BJ's 93 "big box" warehouse clubs have at least
one competitive membership warehouse club in their trading areas at a distance
of about ten miles or less. None of the smaller format clubs has direct
competition from other warehouse clubs within ten miles.
BJ's believes price is the major competitive factor in the markets in which
it competes. Other competitive factors include store location, merchandise
selection, member services and name recognition. BJ's believes its efficient,
low-cost form of distribution gives it a significant competitive advantage over
more traditional channels of wholesale and retail distribution.
Seasonality
Sales and net income have typically been strongest in the fourth quarter
holiday season and lowest in the first quarter of each fiscal year.
Employees
As of January 29, 2000, BJ's had approximately 13,650 employees ("team
members") of whom approximately 300 were considered part-time employees
(persons who work less than 20 hours per week). Approximately 800 team members
were employed in management and office support functions; the balance worked in
the warehouse clubs and cross-docking facilities. None of the Company's team
members is represented by a union. BJ's considers its relations with its team
members to be excellent.
Item 2. Properties
BJ's operated 107 warehouse club locations as of January 29, 2000, of which
65 are leased under long-term leases and 32 are owned. BJ's owns the buildings
at the remaining 10 locations, which are subject to long-term ground leases. A
listing of BJ's locations within each state is shown on page 2.
6
<PAGE>
The unexpired terms of BJ's leases range from approximately one to 41 years,
and average approximately 14 years. BJ's has options to renew all but one of
its leases for periods that range from approximately 5 to 50 years and average
approximately 21 years. These leases require fixed monthly rental payments
which are subject to various adjustments. Certain leases require payment of a
percentage of the warehouse club's gross sales in excess of certain amounts.
Generally, all leases require that BJ's pay all property taxes, insurance,
utilities and other operating costs.
BJ's home offices in Natick, Massachusetts, occupy 142,000 square feet under
leases expiring January 31, 2006, with options to extend these leases through
January 31, 2011. The Company also leases two cross-docking facilities, which
occupy a total of 442,000 square feet under leases which expire in 2005 and
2010, with options to extend these leases through 2015 and 2025, respectively.
To support BJ's growth, the Company plans, by the spring of 2001, to relocate
its cross-docking facility serving southeastern, middle Atlantic and midwest
markets to a new facility that would be approximately twice the size of its
existing location.
See Note D of Notes to Consolidated Financial Statements included elsewhere
in this report for additional information with respect to the Company's leases.
Item 3. Legal Proceedings
BJ's is involved in various legal proceedings that are typical of a retail
business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended January 29, 2000.
Item 4A. Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Office and Employment During Last Five Years
---- --- --------------------------------------------
<C> <C> <S>
Herbert J. Zarkin.. 61 Chairman of the Board of the Company since July 1997;
President, Chief Executive Officer and Director of
Waban (1993-1997); Executive Vice President of Waban
(1989-1993); President of the BJ's Division of Waban
(the "BJ's Division") (1990-1993)
John J. Nugent..... 53 President, Chief Executive Officer and Director of
the Company since July 1997; Executive Vice President
of Waban and President of the BJ's Division (1993-
1997)
Frank D. Forward... 45 Executive Vice President and Chief Financial Officer
of the Company since July 1997; Executive Vice
President, Finance of the BJ's Division from February
1997 to July 1997; Senior Vice President, Finance of
the BJ's Division (1994-1997)
Laura J. Sen....... 43 Executive Vice President, Merchandising of the
Company since July 1997; Executive Vice President,
Merchandising of the BJ's Division from February 1997
to July 1997; Senior Vice President, General
Merchandise of the BJ's Division (1993-1997)
Michael T. Wedge... 46 Executive Vice President, Club Operations of the
Company since July 1997; Executive Vice President,
Sales Operations of the BJ's Division from February
1997 to July 1997; Senior Vice President, Sales
Operations of the BJ's Division (1993-1997)
Sarah M. Gallivan.. 57 Vice President and General Counsel of the Company
since July 1997; Vice President and General Counsel
of Waban (1989-1997)
</TABLE>
All officers serve at the discretion of the Board of Directors and hold
office until the next annual meeting of the Board of Directors and until their
successors are elected and qualified.
7
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The common stock of the Company is listed on the New York Stock Exchange
(symbol "BJ"). The quarterly high and low stock prices for the fiscal years
ended January 29, 2000 and January 30, 1999, adjusted for the effect of the
two-for-one stock split on March 2, 1999, were:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
January 29, 2000 January 30, 1999
----------------- -----------------
Quarter High Low High Low
------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
First................. $ 28 3/4 $ 20 3/8 $ 20 5/16 $ 14 15/16
Second................ 33 3/16 24 1/2 20 31/32 18 1/16
Third................. 32 7/16 25 3/4 19 3/8 16 1/8
Fourth................ 39 29 3/16 23 5/32 17 1/32
</TABLE>
The approximate number of stockholders of record at March 31, 2000 was
2,400. The Company has never declared or paid any cash dividends on its common
stock. The Company currently intends to retain earnings to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. For restrictions on the payment of dividends, see Note C of Notes to
the Consolidated Financial Statements included elsewhere in this report.
8
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------
Jan. 29, Jan. 30, Jan. 31, Jan. 25, Jan. 27,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(53 Weeks)
(Dollars in Thousands except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............... $4,115,825 $3,476,846 $3,159,786 $2,859,950 $2,470,307
Membership fees and
other.................. 90,422 75,335 67,556 64,746 61,096
---------- ---------- ---------- ---------- ----------
Total revenues.......... 4,206,247 3,552,181 3,227,342 2,924,696 2,531,403
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 3,725,638 3,154,017 2,872,303 2,605,602 2,263,532
Selling, general and
administrative
expenses............... 293,538 255,087 231,203 208,077 180,426
Preopening expenses..... 9,536 7,743 3,190 6,447 4,788
Pension termination
costs.................. -- 1,521 -- -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 177,535 133,813 120,646 104,570 82,657
Interest (income)
expense, net........... (3,785) (956) 8,733 16,838 14,757
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 181,320 134,769 111,913 87,732 67,900
Provision for income
taxes.................. 70,171 52,964 43,646 34,108 26,350
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
principle changes...... 111,149 81,805 68,267 53,624 41,550
Cumulative effect of
accounting principle
changes................ -- (19,326) -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 111,149 $ 62,479 $ 68,267 $ 53,624 $ 41,550
========== ========== ========== ========== ==========
Income per common share:
Basic earnings per
share:
Income before
cumulative effect of
accounting principle
changes............... $ 1.51 $ 1.09 $ 0.91 $ 0.72 $ 0.55
Cumulative effect of
accounting principle
changes............... -- (0.26) -- -- --
---------- ---------- ---------- ---------- ----------
Net income............. $ 1.51 $ 0.83 $ 0.91 $ 0.72 $ 0.55
========== ========== ========== ========== ==========
Diluted earnings per
share:
Income before
cumulative effect of
accounting principle
changes............... $ 1.47 $ 1.07 $ 0.90 $ 0.72 $ 0.55
Cumulative effect of
accounting principle
changes............... -- (0.25) -- -- --
---------- ---------- ---------- ---------- ----------
Net income............. $ 1.47 $ 0.82 $ 0.90 $ 0.72 $ 0.55
========== ========== ========== ========== ==========
Pro forma amounts
assuming accounting
principle changes are
applied retroactively:
Net income............. $ 111,149 $ 81,805 $ 65,699 $ 53,201 $ 40,289
========== ========== ========== ========== ==========
Basic earnings per
common share.......... $ 1.51 $ 1.09 $ 0.88 $ 0.71 $ 0.54
========== ========== ========== ========== ==========
Diluted earnings per
common share.......... $ 1.47 $ 1.07 $ 0.87 $ 0.71 $ 0.54
========== ========== ========== ========== ==========
Balance Sheet Data
Working capital......... $ 133,476 $ 108,979 $ 124,957 $ 62,942 $ 77,207
Total assets............ 1,073,448 907,630 811,636 737,211 676,675
Long-term debt and
obligations under
capital leases......... 2,050 32,249 44,930 2,592 2,731
Loans and advances from
Waban Inc.............. -- -- -- 148,081 181,730
Stockholders' equity.... 577,398 485,042 446,257 275,607 221,983
Clubs open at end of
year................... 107 96 84 81 71
</TABLE>
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
BJ's Wholesale Club, Inc., which previously had been a wholly owned
subsidiary of Waban Inc., became a separate and independent public entity on
July 28, 1997, when Waban distributed to its stockholders on a pro rata basis
all of the Company's outstanding common stock (the "spin-off"). The financial
statements of the Company include the financial statements of those
subsidiaries of Waban which, prior to the spin-off, were part of Waban's BJ's
Wholesale Club Division.
Unless noted otherwise, the fiscal year ended January 29, 2000 is referred
to as "1999." Other fiscal years are referred to in a similar manner.
Accounting Principle Changes
During 1998 (the fiscal year ended January 30, 1999), the Company adopted
changes in methods of accounting for membership fee revenues and preopening
expenses. The Company had previously recognized membership fee revenues as
income when received. Under its new accounting method, the Company recognizes
membership fee revenues as income over the life of the membership, which is
typically twelve months. Previously, preopening expenses were charged ratably
to operations between the date a new club opened and the end of the fiscal
year. In implementing American Institute of CPA's Statement of Position ("AICPA
SOP") 98-5, "Reporting on the Costs of Start-up Activities," the Company now
recognizes club preopening expenses when incurred.
The Company has incorporated these accounting changes in its financial
statements for 1999 and 1998. The cumulative effect of these accounting changes
on prior years was recorded as of the beginning of the first quarter of 1998.
Results for 1997 are not restated. For additional information on these
accounting principle changes, see Note A of Notes to Consolidated Financial
Statements.
The following pro forma information gives effect to the retroactive
application of 1998's accounting changes for all periods presented:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------
January 29, 2000 January 30, 1999 January 31, 1998
------------------- ------------------- ------------------
(53 weeks)
% of % of % of
$ Net Sales $ Net Sales $ Net Sales
-------- --------- -------- --------- -------- ---------
(Dollars in Millions except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Pro forma information
Net sales............... $4,115.8 100.0% $3,476.8 100.0% $3,159.8 100.0%
Membership fees and oth-
er..................... 90.4 2.2 75.4 2.2 65.1 2.1
-------- ----- -------- ----- -------- -----
Total revenues.......... 4,206.2 102.2 3,552.2 102.2 3,224.9 102.1
-------- ----- -------- ----- -------- -----
Cost of sales, including
buying and occupancy
costs.................. 3,725.7 90.5 3,154.1 90.7 2,872.3 90.9
Selling, general and ad-
ministrative expenses.. 293.5 7.1 255.1 7.3 231.2 7.3
Preopening expenses..... 9.5 .3 7.7 .2 5.0 .2
Pension termination
costs.................. -- -- 1.5 .1 -- --
-------- ----- -------- ----- -------- -----
Operating income........ 177.5 4.3 133.8 3.9 116.4 3.7
Interest (income) ex-
pense, net............. (3.8) (.1) (1.0) -- 8.7 .3
-------- ----- -------- ----- -------- -----
Income before income
taxes.................. 181.3 4.4 134.8 3.9 107.7 3.4
Provision for income
taxes.................. 70.2 1.7 53.0 1.5 42.0 1.3
-------- ----- -------- ----- -------- -----
Net income.............. $ 111.1 2.7% $ 81.8 2.4% $ 65.7 2.1%
======== ===== ======== ===== ======== =====
Diluted net income per
common share........... $ 1.47 $ 1.07 $ .87
======== ======== ========
Number of clubs in oper-
ation at year end...... 107 96 84
</TABLE>
10
<PAGE>
Stock Split
On February 4, 1999, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999.
The split was effected by reissuing the 803,638 treasury shares held by the
Company and issuing 36,098,862 additional shares of common stock on the
distribution date. The stock split is recorded in the financial statements for
the fiscal year ended January 30, 1999. All historical earnings per share
amounts have been restated to reflect the stock split. Reference to stock
activity before the distribution of the split has not been restated unless
otherwise noted.
Results of Operations
Net sales increased by 18.4% from 1998 to 1999 and by 10.0% from 1997 to
1998. 1997 was a 53-week fiscal year. The increases in both years were due to
the opening of new stores and to comparable store sales increases. Comparable
store net sales (on a same-week basis) increased by 7.3% from 1998 to 1999 and
by 5.2% from 1997 to 1998. The Company's strong comparable store sales
performance in 1999 was driven by a healthy consumer spending environment,
favorable weather conditions throughout the year and millennium-related demand
in the fourth quarter. Additionally, the Company expanded the number of gas
stations it operates from five at the end of 1998 to 19 at the end of 1999.
Total revenues included membership fees of $79.3 million in 1999 and $65.5
million in 1998, and pro forma membership fees of $56.4 million in 1997.
Membership fees in the last two years benefited from the addition of new stores
and an increase in the fee for Inner Circle, or retail, members from $30 to
$35, effective February 1, 1998, and an increase in the fee for business
members from $30 to $35, effective February 1, 1999.
Cost of sales (including buying and occupancy costs) was 90.5% of net sales
in 1999, 90.7% in 1998 and 90.9% in 1997. The decreases in the cost of sales
percentage resulted from the Company's ability to introduce higher margin
products into the merchandise mix and from leveraging fixed buying and
occupancy costs against increased comparable store sales.
Selling, general and administrative ("SG&A") expenses were 7.1% of net sales
in 1999 and 7.3% of net sales in each of 1998 and 1997. The SG&A percentage was
favorably impacted in the last two years by leveraging fixed expenses against
both increased comparable store sales and a growing number of clubs, and by
effective control over other operating expenses. In 1999, the Company also
realized cost savings from a new medical plan for employees that became
effective on January 1, 1999. Credit expenses as a percentage of sales have
risen in the last two years due to the increased level of credit card sales
resulting mainly from the Company's acceptance of VISA beginning in September
1997 and to increased costs in 1998 for the Company's co-branded MasterCard.
The Company also incurred incremental marketing costs in 1998 to support its
entry into the Ohio market and higher general and administrative expenses after
July 1997 as a result of operating as an independent publicly owned entity.
Preopening expenses were $9.5 million in 1999 and $7.7 million in 1998; pro
forma preopening expenses were $5.0 million in 1997. The Company opened eleven
new clubs in 1999, twelve in 1998 and four in 1997. A portion of 1999's
preopening expenses was incurred for a club which opened in February 2000, and
a portion of 1997's preopening expenses was incurred for two clubs which opened
in February 1998.
During 1998, the Company recorded a pre-tax charge of $1.5 million in
connection with the termination of the Waban Inc. Retirement Plan, in which
certain of the Company's employees participated. On a post-tax basis, this
charge amounted to $.9 million, or $.01 per diluted share.
11
<PAGE>
The components of net interest (income) expense in the last three fiscal
years were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
------------- ------------- -------------
(Dollars in Millions)
<S> <C> <C> <C>
Interest expense on debt.......... $ .3 $ .9 $9.3
Capitalized interest.............. (.3) (.7) (.4)
Interest income................... (4.0) (1.4) (.5)
----- ----- ----
Interest on debt, net............. (4.0) (1.2) 8.4
Interest on capital leases........ .2 .2 .3
----- ----- ----
Interest (income) expense, net.... $(3.8) $(1.0) $8.7
===== ===== ====
</TABLE>
Net interest income in 1999 increased primarily because of higher levels of
investments and lower borrowing levels than those of 1998. As described in more
detail below, interest expense after July 28, 1997 was reduced because
borrowing levels and interest rates applied to those borrowings were
significantly lower after the spin-off.
The Company's income tax provision was 38.7% of pre-tax income in 1999,
39.3% in 1998 and 39.0% in 1997. The decrease in the rate in 1999 was due to a
reduction in the effective state income tax rate.
Net income was $111.1 million, or $1.47 per diluted share, in 1999 versus
income before the cumulative effect of accounting principle changes of $81.8
million, or $1.07 per diluted share, in 1998 and pro forma net income of $65.7
million, or $.87 per diluted share, in 1997. The cumulative effect of
accounting principle changes reduced net income in 1998 by $19.3 million, or
$.25 per diluted share. Net income in 1998 was $62.5 million, or $.82 per
diluted share.
BJ's Wholesale Club, Inc. commenced operations as a separate entity
immediately following its July 28, 1997 spin-off from Waban. Therefore,
reported financial results through the first half of 1997 reflect BJ's
historical position as a division of Waban and, as such, are not indicative of
performance after the spin-off. As a separate, publicly owned company, BJ's
incurs SG&A costs which are higher than the amounts included in the historical
financial statements for periods preceding the spin-off. However, interest on
intercompany borrowings charged at an annual rate of 10% prior to the spin-off
was replaced by interest on bank borrowings at significantly lower rates and
the level of debt was reduced substantially by the contribution to capital of
approximately $101 million of BJ's intercompany debt immediately prior to the
spin-off.
The following table: 1) restates 1997's historical results for the effects
of the spin-off noted in the preceding paragraph; 2) presents data on a pro
forma basis, as if the accounting principles for membership fees and preopening
expenses adopted in 1998 had been in effect for all periods shown; and 3)
excludes the pension termination charge from 1998's results:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------
Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998
---------------------------------------------------------
$ % Incr. $ % Incr. $ % Incr.
-------- ------------------ ------------------ ----------
(Dollars in Millions except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Pro forma information
Operating income........ $ 177.5 31.2% $ 135.3 17.2% $ 115.4 13.3%
Net income.............. 111.1 34.4 82.7 21.6 68.0 16.9
Diluted net income per
share.................. 1.47 34.9 1.09 22.5 .89 15.6
</TABLE>
During 1999, the Company increased the number of gas stations in operation
from five at the beginning of the year to 19 at the end of the year. Although
the gas stations themselves operate at a much lower margin rate than the rest
of BJ's business, they have had a very positive effect on club sales and
membership. Consequently, where it is possible to do so, the Company plans to
include a gas station in its new clubs and will continue to add gas stations in
existing clubs.
12
<PAGE>
Year 2000 Compliance
The Company worked for several years to prepare its financial, merchandising
and other information technology ("IT") systems for the Year 2000. Major non-IT
systems, including refrigeration, security and utilities systems were also
reviewed for Year 2000 issues. The Company also worked with key vendors and
other third parties with whom it does business to minimize the potential
adverse impact on the Company if they failed to address the Year 2000 issue
successfully.
As of the date of this report, the Company has not encountered any
significant Year 2000 issues. Based on information available at this time, the
Company does not believe that Year 2000 issues will have a material adverse
effect on the Company's results of operations, financial position or cash
flows.
Seasonality
The Company's business, in common with the business of retailers generally,
is subject to seasonal influences. The Company's sales and operating income
have typically been strongest in the fourth quarter holiday season and lowest
in the first quarter of each fiscal year.
Recently Issued Accounting Standards
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
adoption of this statement, which currently becomes effective in 2001, is not
expected to have a material impact on the Company's results of operations,
financial position or cash flows, or to produce any major changes in current
disclosures.
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101
was released on December 3, 1999 and provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The Company's implementation date for SAB 101 is the second quarter of
2000. The Company does not believe that the implementation of SAB 101 will have
a material effect on its results of operations, financial position or cash
flows.
Liquidity and Capital Resources
Net cash provided by operating activities was $184.5 million in 1999
compared with $113.8 million in 1998. This increase resulted mainly from an
increase in cash provided by net income before depreciation and amortization of
$35.0 million and a decrease in cash used for the growth in inventories net of
accounts payable of $28.0 million.
Cash expended for property additions was $87.5 million in 1999 versus $78.3
million in 1998. The Company opened eleven new clubs in 1999 and twelve new
clubs in 1998. One of the 1999 openings was at an owned location. Two of the
1998 openings were at owned locations and a third owned building was opened at
a location that is subject to a long-term ground lease. The Company also opened
14 new gas stations in 1999 versus five gas stations in 1998.
The Company's capital expenditures are estimated to total approximately $115
million in 2000, based on opening approximately ten to eleven new clubs,
relocating one club, opening 15 to 20 gas stations, and relocating the
Company's current cross-docking facility outside of Philadelphia. The new
630,000 square foot facility will be approximately twice the size of the
current facility and is projected to open in the spring of 2001. The timing of
actual location openings and the amount of related expenditures could vary from
these estimates due, among other things, to the complexity of the real estate
development process.
In August 1999, the Company completed its repurchase of $50 million of its
common stock, which had been authorized by the Board of Directors in August
1998. On September 16, 1999, the Board authorized the repurchase of an
additional $50 million of the Company's common stock. During 1999, the Company
repurchased 1,190,702 shares of common stock for $35.0 million, or an average
price of $29.41 per share. As of January 29, 2000, the Company's remaining
repurchase authorization was $34.0 million.
13
<PAGE>
The Company has a $200 million unsecured credit agreement with a group of
banks which expires July 9, 2002. The agreement includes a $50 million sub-
facility for letters of credit, of which $3.4 million was outstanding at
January 29, 2000. The Company is required to pay an annual facility fee which
is currently 0.10% of the total commitment. Interest on borrowings is payable
at the Company's option either at (a) the Eurodollar rate plus a margin which
is currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation and prohibit the payment of cash dividends on the Company's common
stock. In September 1999, the agreement was amended to generally limit the
cumulative repurchase of the Company's common stock to $50 million plus 50% of
Net Income (as defined by the agreement) earned after January 30, 1998.
The Company also maintains a separate $33 million facility for letters of
credit, primarily to support the purchase of inventories, of which $11.4
million was outstanding at January 29, 2000, and an additional $20 million
uncommitted credit line for short-term borrowings.
Increases in inventories and accounts payable from January 30, 1999 to
January 29, 2000 were due to the addition of new clubs and to the earlier
purchase of certain seasonal merchandise this year.
Cash and cash equivalents totaled $60.4 million as of January 29, 2000, and
there were no borrowings outstanding on that date. The Company expects that its
current resources, together with anticipated cash flow from operations, will be
sufficient to finance its operations through February 3, 2001. However, the
Company may from time to time seek to obtain additional financing.
Factors Which Could Affect Future Operating Results
This report contains a number of "forward-looking statements," including
statements regarding planned capital expenditures, planned store, gas station
and distribution facility openings, plans to begin accepting debit cards and
introduce improved scanning devices at checkout stations, plans to expand BJ's
private label program, exposure to market risk and other information with
respect to the Company's plans and strategies. Any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "estimates," "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause actual events or the Company's actual
results to differ materially from those indicated by such forward-looking
statements, including, without limitation, the factors set forth below. The
Company does not assume any obligations to update any forward-looking
statements herein.
BJ's warehouse clubs are located in the eastern United States, primarily in
the Northeast. The Company's business may be adversely affected from time to
time by economic downturns in its markets. In addition, the Company may be
impacted by state and local regulation in its markets and temporarily impacted
by weather conditions prevailing in its markets.
The Company competes with national, regional and local retailers and
wholesalers, including national chains in the warehouse merchandising business,
some of which have significantly greater financial and marketing resources than
the Company, which could adversely affect the Company's business, operating
results and financial condition.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to
43 current HomeBase leases as to which TJX was either a lessee or guarantor. In
connection with the spin-off of the Company from Waban in 1997, the Company
agreed to indemnify TJX with respect to any liabilities TJX may incur with
respect to HomeBase leases through January 31, 2003, and thereafter it will
indemnify TJX for 50% of such liabilities. Although HomeBase is primarily
liable for these
14
<PAGE>
leases, there can be no assurance that HomeBase will be able to make all future
payments under these leases. Pursuant to the Company's spin-off from Waban,
BJ's may not renew any of its real estate leases (other than ground leases) for
which HomeBase may be liable during any period in which BJ's does not meet
certain minimum standards of creditworthiness.
In connection with the spin-off in 1997, Waban received a letter ruling from
the Internal Revenue Service to the effect that, for federal income tax
purposes, the distribution of the Company's stock to Waban's stockholders (the
"Distribution") and related asset transfers would be tax-free to Waban's
stockholders. Certain future events not within the control of the Company or
HomeBase, including, for example, certain dispositions of the Company's common
stock or HomeBase's common stock, could cause the Distribution not to qualify
for tax-free treatment. If this occurred, the related tax liability would be
payable by HomeBase, although the Company has agreed to indemnify HomeBase
under certain circumstances for all or a portion of such tax liability.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its potential exposure to market risk as of
January 29, 2000 is not material because of the short contractual maturities of
its cash and cash equivalents. No bank debt was outstanding at January 29,
2000. The Company has not used derivative financial instruments. See Summary of
Accounting Policies--Disclosures about Fair Value of Financial Instruments and
Note C in Notes to the Consolidated Financial Statements.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998............................. 17
Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999.. 18
Consolidated Statements of Cash Flows for the fiscal years ended January
29, 2000, January 30, 1999 and January 31, 1998......................... 19
Consolidated Statements of Stockholders' Equity for the fiscal years
ended January 29, 2000,
January 30, 1999 and January 31, 1998................................... 20
Notes to Consolidated Financial Statements............................... 21
Selected Quarterly Financial Data........................................ 32
Report of Independent Accountants........................................ 33
Report of Management..................................................... 33
</TABLE>
16
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
--------------- --------------- ---------------
(53 weeks)
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Net sales.................... $ 4,115,825 $ 3,476,846 $ 3,159,786
Membership fees and other.... 90,422 75,335 67,556
--------------- --------------- ---------------
Total revenues.............. 4,206,247 3,552,181 3,227,342
--------------- --------------- ---------------
Cost of sales, including
buying and occupancy costs.. 3,725,638 3,154,017 2,872,303
Selling, general and
administrative expenses..... 293,538 255,087 231,203
Preopening expenses.......... 9,536 7,743 3,190
Pension termination costs.... -- 1,521 --
--------------- --------------- ---------------
Operating income............ 177,535 133,813 120,646
Interest (income) expense,
net......................... (3,785) (956) 8,733
--------------- --------------- ---------------
Income before income taxes
and cumulative effect of
accounting principle
changes..................... 181,320 134,769 111,913
Provision for income taxes... 70,171 52,964 43,646
--------------- --------------- ---------------
Income before cumulative
effect of accounting
principle changes........... 111,149 81,805 68,267
Cumulative effect of
accounting principle
changes..................... -- (19,326) --
--------------- --------------- ---------------
Net income................. $ 111,149 $ 62,479 $ 68,267
=============== =============== ===============
Net income per common share:
Basic earnings per share:
Income before cumulative
effect of accounting
principle changes......... $ 1.51 $ 1.09 $ 0.91
Cumulative effect of
accounting principle
changes................... -- (0.26) --
--------------- --------------- ---------------
Net income................. $ 1.51 $ 0.83 $ 0.91
=============== =============== ===============
Diluted earnings per share:
Income before cumulative
effect of accounting
principle changes......... $ 1.47 $ 1.07 $ 0.90
Cumulative effect of
accounting principle
changes................... -- (0.25) --
--------------- --------------- ---------------
Net income................. $ 1.47 $ 0.82 $ 0.90
=============== =============== ===============
Number of common shares for
earnings per share
computations:
Basic...................... 73,657,016 74,804,538 74,962,346
Diluted.................... 75,391,489 76,095,876 75,487,798
Pro forma amounts assuming
accounting principle changes
are applied retroactively:
Net income................. $ 111,149 $ 81,805 $ 65,699
=============== =============== ===============
Basic earnings per common
share..................... $ 1.51 $ 1.09 $ 0.88
=============== =============== ===============
Diluted earnings per common
share..................... $ 1.47 $ 1.07 $ 0.87
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 60,437 $ 12,150
Marketable securities................................. -- 100
Accounts receivable................................... 51,998 51,134
Merchandise inventories............................... 446,771 372,740
Current deferred income taxes......................... 5,995 7,859
Prepaid expenses...................................... 15,482 12,607
---------- --------
Total current assets................................ 580,683 456,590
---------- --------
Property at cost:
Land and buildings.................................... 342,817 322,712
Leasehold costs and improvements...................... 59,350 45,861
Furniture, fixtures and equipment..................... 279,381 236,231
---------- --------
681,548 604,804
Less accumulated depreciation and amortization........ 201,486 168,957
---------- --------
480,062 435,847
---------- --------
Property under capital leases........................... 3,319 6,219
Less accumulated amortization......................... 2,115 1,949
---------- --------
1,204 4,270
---------- --------
Other assets............................................ 11,499 10,923
---------- --------
Total assets........................................ $1,073,448 $907,630
========== ========
LIABILITIES
Current liabilities:
Accounts payable...................................... $ 288,540 $213,702
Accrued expenses and other current liabilities........ 137,641 121,951
Accrued federal and state income taxes................ 20,806 11,757
Obligations under capital leases due within one year.. 220 201
---------- --------
Total current liabilities........................... 447,207 347,611
---------- --------
Long-term debt.......................................... -- 30,000
Obligations under capital leases, less portion due
within one year........................................ 2,050 2,249
Other noncurrent liabilities............................ 38,431 34,928
Deferred income taxes................................... 8,362 7,800
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 180,000,000
shares, issued 74,410,190 and 73,805,000 shares........ 744 738
Additional paid-in capital.............................. 85,958 78,376
Retained earnings....................................... 517,052 405,928
Treasury stock, at cost, 867,370 shares................. (26,356) --
---------- --------
Total stockholders' equity.......................... 577,398 485,042
---------- --------
Total liabilities and stockholders' equity.......... $1,073,448 $907,630
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(53 Weeks)
(Dollars in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $111,149 $ 62,479 $ 68,267
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting principle
changes................................. -- 19,326 --
Depreciation and amortization of proper-
ty...................................... 46,476 40,854 37,426
Loss on property disposals............... 1,295 659 576
Other noncash items (net)................ 117 206 130
Deferred income taxes.................... 2,426 1,942 1,003
Increase (decrease) in cash due to
changes in:
Accounts receivable.................... (864) (12,812) (4,316)
Merchandise inventories................ (74,031) (40,466) (37,058)
Prepaid expenses....................... (2,875) 3 (7,959)
Other assets........................... (674) (25) (835)
Accounts payable....................... 74,838 13,316 362
Accrued expenses....................... 14,121 12,727 2,996
Accrued income taxes................... 9,049 17,104 (5,422)
Other noncurrent liabilities........... 3,503 (1,468) 7,930
-------- -------- --------
Net cash provided by operating activities.. 184,530 113,845 63,100
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities.......... (1,582) (95) --
Maturity of marketable securities.......... 1,682 -- --
Property additions......................... (87,475) (78,338) (50,291)
Proceeds from property disposals........... 125 548 3,343
-------- -------- --------
Net cash used in investing activities...... (87,250) (77,885) (46,948)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of capital lease obligations..... (180) (165) (140)
Borrowing (repayment) of long-term debt.... (30,000) (12,500) 42,500
Cash dividends paid on preferred stock of
subsidiary................................ (25) (25) (25)
Proceeds from sale and issuance of common
stock..................................... 16,236 5,909 983
Purchase of treasury stock................. (35,024) (30,930) --
Contribution to capital by Waban Inc....... -- 1,188 --
Decrease in loans and advances from Waban
Inc. ..................................... -- -- (46,757)
-------- -------- --------
Net cash used in financing activities...... (48,993) (36,523) (3,439)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 48,287 (563) 12,713
Cash and cash equivalents at beginning of
year...................................... 12,150 12,713 --
-------- -------- --------
Cash and cash equivalents at end of year... $ 60,437 $ 12,150 $ 12,713
======== ======== ========
Supplemental cash flow information:
Interest paid............................ $ 203 $ 420 $ 9,127
Income taxes paid........................ 58,696 33,918 48,065
Noncash financing and investing activities:
Contribution to capital by Waban Inc..... -- -- 101,324
Treasury stock issued for compensation
plans and in connection with stock
split................................... 8,668 30,930 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
BJ'S WHOLESALE CLUB, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional Total
Stock Paid-in Retained Treasury Stockholders'
Par Value $.01 Capital Earnings Stock Equity
-------------- ---------- -------- -------- -------------
(Dollars in Thousands except Per Share Amount)
<S> <C> <C> <C> <C> <C>
Balance, January 25,
1997................... $375 $ -- $275,232 $ -- $275,607
Net income............ -- -- 68,267 -- 68,267
Sale and issuance of
common stock......... -- 1,084 -- -- 1,084
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Contribution to capi-
tal by Waban Inc..... -- 101,324 -- -- 101,324
---- -------- -------- -------- --------
Balance, January 31,
1998................... 375 102,408 343,474 -- 446,257
Net income............ -- -- 62,479 -- 62,479
Sale and issuance of
common stock......... 2 4,433 -- 1,638 6,073
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Purchase of treasury
stock................ -- -- -- (30,930) (30,930)
Two-for-one stock
split................ 361 (29,653) -- 29,292 --
Contribution to capi-
tal by Waban Inc..... -- 1,188 -- -- 1,188
---- -------- -------- -------- --------
Balance, January 30,
1999................... 738 78,376 405,928 -- 485,042
Net income............ -- -- 111,149 -- 111,149
Sale and issuance of
common stock......... 6 7,582 -- 8,668 16,256
Cash dividends on
preferred stock of
subsidiary........... -- -- (25) -- (25)
Purchase of treasury
stock................ -- -- -- (35,024) (35,024)
---- -------- -------- -------- --------
Balance, January 29,
2000................... $744 $ 85,958 $517,052 $(26,356) $577,398
==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Basis of Presentation
The consolidated financial statements of BJ's Wholesale Club, Inc. (the
"Company") include the financial statements of all of the Company's
subsidiaries, all of whose common stock is wholly owned by the Company.
Fiscal Year
Through January 30, 1999, the Company's fiscal year ended each year on the
last Saturday in January. Beginning with the fiscal year ended January 29,
2000, the Company's fiscal year ended on the Saturday closest to January 31.
The first fiscal year that will end on a different day as a result of this
change will be the fiscal year ending February 3, 2001. The fiscal years ended
January 29, 2000 and January 30, 1999 included 52 weeks. The fiscal year ended
January 31, 1998 included 53 weeks.
Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with a maturity of three
months or less at time of purchase to be cash equivalents. Investments with
maturities exceeding three months are classified as marketable securities. The
Company's marketable securities at January 30, 1999 consisted of U.S.
government debt securities and were carried at cost, which approximated fair
value.
Merchandise Inventories
Inventories are stated at the lower of cost, determined under the average
cost method, or market. The Company recognizes the write-down of slow-moving or
obsolete inventory in cost of sales when such write-downs are probable and
estimable.
Property and Equipment
Property is depreciated by use of the straight-line method for financial
reporting purposes. Buildings are depreciated over 33 1/3 years. Leasehold
costs and improvements are amortized over the lease term or their estimated
useful life, whichever is shorter. Furniture, fixtures and equipment are
depreciated over three to ten years.
Membership Fees
Effective with the fiscal year ended January 30, 1999, membership income is
recognized over the life of the membership, which is typically twelve months.
(See Note A.)
Preopening Costs
Preopening costs consist of direct incremental costs of opening a facility
and, effective with the fiscal year ended January 30, 1999, are charged to
operations as incurred. (See Note A.)
Interest (Income) Expense, Net
Interest (income) expense, net in the statements of income includes interest
income of $4,045,000 in 1999, $1,404,000 in 1998 and $463,000 in 1997.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $302,000, $657,000 and $430,000 was
capitalized in 1999, 1998 and 1997, respectively.
21
<PAGE>
Stock-Based Compensation
The Company applies the accounting provisions prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related Interpretations in accounting for its stock-based
compensation.
Disclosures about Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments. Because of the short
contractual maturities of the Company's bank debt, its carrying amount also
approximates fair value. (See Note C.)
Recently Issued Accounting Standards
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
adoption of this statement, which currently becomes effective in 2001, is not
expected to have a material impact on the Company's results of operations,
financial position or cash flows, or to produce any major changes in current
disclosures.
Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 101
was released on December 3, 1999 and provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The Company's implementation date for SAB 101 is the second quarter of
2000. The Company does not believe that the implementation of SAB 101 will have
a material effect on its results of operations, financial position or cash
flows.
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Accounting Principle Changes
During the fiscal year ended January 30, 1999, the Company adopted changes
in methods of accounting for membership fee revenues and preopening expenses.
The Company had previously recognized membership fee revenues as income when
received. Under its new accounting method, the Company now recognizes
membership fee revenues as income over the life of the membership, which is
typically twelve months. The Company recorded a noncash charge of $18,216,000
(after reduction for income taxes of $11,646,000), or $.24 per diluted share,
as of the beginning of 1998 to reflect the cumulative effect of this change on
prior years.
Prior to 1998, preopening expenses were charged ratably to operations
between the date a new club opened and the end of the fiscal year. In
implementing the provisions of the American Institute of CPA's Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," the Company now
recognizes club preopening expenses when incurred. The Company recorded a
noncash charge of $1,110,000 (after reduction for income taxes of $710,000), or
$.01 per diluted share, as of the beginning of 1998 to reflect the cumulative
effect of this change on prior years.
Although results for the fiscal year ended January 31, 1998 were not
restated, the pro forma amounts at the bottom of the consolidated statements of
income reflect the post-tax results as if the newly adopted accounting
principles had been in effect during all periods presented.
22
<PAGE>
B. Spin-off of the Company from Waban Inc. and Related Party Transactions
The Company, which previously had been a wholly owned subsidiary of Waban
Inc. ("Waban"), became a separate and independent public entity on July 28,
1997, when Waban distributed to its stockholders on a pro rata basis all of the
Company's outstanding common stock (the "spin-off"). The financial statements
of the Company include the financial statements of those subsidiaries of Waban
which, prior to the spin-off, operated Waban's BJ's Wholesale Club Division.
As of July 26, 1997, Waban transferred all of the assets and liabilities of
its BJ's Wholesale Club division to the Company and contributed all of the
Company's intercompany debt of $101.3 million to the Company's equity in
connection with the spin-off.
Also pursuant to the spin-off, the Company and Waban entered into a Tax
Sharing Agreement to provide for the payment of taxes and the entitlement to
tax refunds for periods prior to the spin-off date. Each party has agreed to
indemnify the other in specified circumstances if certain events occurring
after July 28, 1997 cause the spin-off or certain related transactions to
become taxable.
Prior to the spin-off, Waban loaned funds to the Company as needed and
charged interest to the Company at an annual rate of 10% based on the Company's
average monthly intercompany balance (net of cash). The Company's intercompany
interest expense was $7,642,000 in 1997 (all of which was incurred in the first
half of the fiscal year).
Selling, general and administrative expenses included certain allocations of
overhead incurred by Waban that supported the Company's business prior to the
spin-off. These expenses totaled $2,246,000 in 1997 (all of which was incurred
in the first half of the fiscal year) and were generally allocated based on
specific identification and management's estimates of the time devoted to
supporting the Company.
Since the spin-off, the Company has provided certain services to Waban
(which has since changed its name to HomeBase, Inc. ("HomeBase")) at rates
negotiated in accordance with a Services Agreement entered into between the
Company and HomeBase. The amounts received by the Company for these services
were not material.
C. Debt
The Company has a $200 million unsecured credit agreement with a group of
banks which expires July 9, 2002. The agreement includes a $50 million sub-
facility for letters of credit, of which $3.4 million was outstanding at
January 29, 2000. The Company is required to pay an annual facility fee which
is currently 0.10% of the total commitment. Interest on borrowings is payable
at the Company's option either at (a) the Eurodollar rate plus a margin which
is currently 0.25%, (b) the agent bank's prime rate or (c) a rate determined by
competitive bidding. The facility fee and Eurodollar margin are both subject to
change based upon the Company's fixed charge coverage ratio. The agreement
contains covenants which, among other things, include minimum net worth and
fixed charge coverage requirements and a maximum funded debt-to-capital
limitation, and prohibit the payment of cash dividends on the Company's common
stock. In September 1999, the agreement was amended to generally limit the
cumulative repurchase of the Company's common stock to $50 million plus 50% of
Net Income (as defined by the agreement) earned after January 30, 1998.
The Company also maintains a separate line in the amount of $33 million for
letters of credit, primarily to support the purchase of inventories, of which
$11.4 million was outstanding at January 29, 2000, and an additional $20
million uncommitted credit line for short-term borrowings.
There were no bank borrowings outstanding at January 29, 2000 versus $30
million outstanding at January 30, 1999. The weighted-average interest rate on
bank borrowings was 5.12% at January 30, 1999. These borrowings were classified
as long-term debt pursuant to the Company's intention and ability to refinance
these obligations on a long-term basis under its bank credit agreement.
23
<PAGE>
D. Commitments and Contingencies
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally required
to pay insurance, real estate taxes and other operating expenses and, in some
cases, additional rentals based on a percentage of sales or increases in the
Consumer Price Index. The real estate leases range up to 45 years and have
varying renewal options. The fixture and equipment leases range up to 5 years.
Future minimum lease payments as of January 29, 2000 were:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Years Ending January Leases Leases
--------------------------- ---------- -------------
(Dollars in Thousands)
<S> <C> <C>
2001............................................... $ 427 $ 64,706
2002............................................... 427 67,989
2003............................................... 449 66,262
2004............................................... 456 67,211
2005............................................... 456 66,690
Later years........................................ 1,026 722,897
--------- -------------
Total minimum lease payments....................... 3,241 $ 1,055,755
=============
Less amount representing interest.................. 971
---------
Present value of net minimum capital lease pay-
ments............................................. $ 2,270
=========
</TABLE>
Rental expense under operating leases (including contingent rentals, which
were not material) amounted to $57,148,000, $48,226,000 and $43,558,000 in
1999, 1998 and 1997, respectively.
The Company is involved in various legal proceedings that are typical of a
retail business. Although it is not possible to predict the outcome of these
proceedings or any related claims, the Company believes that such proceedings
or claims will not, individually or in the aggregate, have a material adverse
effect on its financial condition or results of operations.
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban agreed
to indemnify TJX against any liabilities that TJX might incur with respect to
43 current HomeBase leases as to which TJX was either a lessee or guarantor. In
settlement of legal proceedings filed by TJX in 1997, the Company agreed that
it will indemnify TJX with respect to any liabilities that TJX may incur with
respect to HomeBase leases through January 31, 2003, and thereafter it will
indemnify TJX for 50% of such liabilities. The Company believes that since
HomeBase is primarily liable for these leases, the Company's contingent
liability under this agreement will not have a material effect on the Company's
financial condition.
E. Capital Stock
The historical capitalization of the Company has been retroactively restated
to reflect the issuance of 37,484,937 shares of common stock, the number of
shares of the Company's common stock distributed to Waban stockholders on July
28, 1997. In addition, the Company has authorized 20,000,000 shares of
preferred stock, $.01 par value, of which no shares have been issued.
On February 4, 1999, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a 100% stock dividend, which was
distributed on March 2, 1999 to stockholders of record on February 16, 1999.
The split was effected by reissuing the 803,638 treasury shares held by the
Company at that time and issuing 36,098,862 additional shares of common stock
on the distribution date. The stock split is recorded in the financial
statements for the fiscal year ended January 30, 1999. All historical earnings
per share amounts have been restated to reflect the stock split. Reference to
stock activity before the distribution of the split has not been restated
unless otherwise noted.
24
<PAGE>
The Company has a shareholder rights plan, originally adopted in 1997 and
amended in 1999, pursuant to which shareholders are issued one-half of a Right
(as adjusted for the two-for-one stock split) for each share of common stock.
Each Right entitles the holder to purchase from the Company 1/1000 share of
Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a
price of $120. The Company has designated 100,000 shares of Series A Preferred
Stock for issuance under the shareholder rights plan; none has been issued to
date. Generally, the terms of the Series A Preferred Stock are designed so that
1/1000 share of Series A Preferred Stock is the economic equivalent of one
share of the Company's common stock. The Rights are exercisable only if a
person acquires 20% or more of the Company's common stock or commences a tender
offer that would result in such person owning 30% or more of the Company's
common stock. In addition, in general, if after a person has become a 20%
owner, the Company is involved in a business combination transaction in which
it is not the surviving corporation or in connection with which the Company's
common stock is changed, or the Company disposes of 50% or more of its assets
or earning power, each Right that has not previously been exercised or voided
will entitle its holder to purchase that number of shares of common stock of
such other person which equals $120 divided by one-half of the then current
market price of such common stock. The Company will generally be entitled to
redeem the Rights at $.01 per Right at any time until the tenth business day
following public announcement that a person has become a 20% owner. The Rights
expire on July 10, 2007, unless earlier redeemed or exchanged.
In December 1997, one of the Company's subsidiaries issued 126 shares of
non-voting preferred stock to individual stockholders at $2,200 per share.
These shares are each entitled to receive ongoing annual dividends of $200 per
share. The minority interest in this subsidiary is equal to the preferred
shares' preference in an involuntary liquidation of $277,200 and is included in
other noncurrent liabilities in the Company's consolidated balance sheets at
January 29, 2000 and January 30, 1999.
F. Stock Incentive Plans
All references in this footnote to historical awards, outstanding awards and
available shares for future grants under the Company's stock incentive plans
and related per share amounts reflect the two-for-one stock split distributed
on March 2, 1999.
Under its 1997 Stock Incentive Plan, the Company has granted certain key
employees options to purchase common stock at prices equal to 100% of market
price on the grant date. These options, which expire ten years from the grant
date, are exercisable 25% per year starting one year after the grant date. At
the Company's Annual Meeting of Stockholders in May 1999, an amendment to
increase the maximum number of shares issuable under the 1997 Stock Incentive
Plan by 2,000,000 shares was approved. The maximum number of shares of common
stock issuable under this plan is now 5,249,402 shares, plus shares subject to
awards granted under the BJ's Wholesale Club, Inc. 1997 Replacement Stock
Incentive Plan (the "Replacement Plan") which are not actually issued because
such awards expire or are canceled. Under the Replacement Plan, which expired
on January 28, 1998, BJ's employees who held Waban stock options and restricted
stock were granted replacement BJ's options and restricted stock, which
preserved the same inherent value, vesting terms and expiration dates as the
Waban awards they replaced in connection with the spin-off.
Under its 1997 Director Stock Option Plan, BJ's external directors are
granted options to purchase common stock at prices equal to 100% of market
price on the grant date. These options expire ten years from the grant date and
are exercisable in three equal annual installments beginning on the first day
of the month which includes the first anniversary of the date of grant. A
maximum of 300,000 shares may be issued under the 1997 Director Stock Incentive
Plan.
The Company applies APB 25 and related Interpretations in accounting for its
stock-based compensation. Total pre-tax compensation cost recognized in the
statements of income for stock-based employee compensation awards to the
Company's employees was $19,000 in 1999, $163,000 in 1998 and $171,000 in 1997
and consisted entirely of restricted stock expense, which is charged to income
ratably over the periods during which the restrictions lapse. No restricted
stock was issued in 1999. During 1998, 2,000 shares of
25
<PAGE>
restricted stock were issued at a weighted-average grant-date fair value of
$19.72. No restricted stock (other than 7,890 replacement shares) was issued in
1997. No compensation cost was recognized under APB 25 for the Company's stock
options because the exercise price equaled the market price of the underlying
stock on the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation," and has
been determined as if the Company had accounted for its stock options under the
fair value method of that statement. The fair value for these options was
estimated at the grant date using the Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rates of 6.19%,
5.16% and 6.01% in 1999, 1998 and 1997, respectively; volatility factor of the
expected market price of the Company's common stock of .42 in 1999 and .35 in
1998 and 1997; and expected life of the options of 5 years in 1999, 1998 and
1997. No dividends were expected.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(Dollars in Thousands except
Per Share Amounts)
<S> <C> <C> <C>
Pro forma net income..................... $107,617 $60,004 $65,951
Pro forma earnings per share:
Basic.................................. $ 1.46 $ 0.80 $ 0.88
Diluted................................ $ 1.43 $ 0.79 $ 0.87
</TABLE>
The effects of applying the provisions of SFAS No. 123 for pro forma
disclosure are not necessarily representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year. In accordance with the transition
requirements of SFAS No. 123, the pro forma disclosures above include stock
options awarded only after January 28, 1995.
26
<PAGE>
Presented below is a summary of the status of BJ's Wholesale Club, Inc.
stock option activity from the date of the spin-off to January 29, 2000. Also
shown is a summary of activity related to Waban stock options held by Company
employees for the six-month period ended July 26, 1997:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Fiscal year ended January 31, 1998:
Waban options outstanding at beginning of year.... 3,793,792 $ 9.37
Granted........................................... 95,000 13.78
Exercised......................................... (404,688) 8.91
Forfeited......................................... (51,670) 9.52
---------
Outstanding at July 26, 1997........................ 3,432,434 9.55
=========
BJ's options substituted for Waban options, and out-
standing at July 28, 1997.......................... 3,812,828 7.86
Granted........................................... 1,065,000 15.07
Exercised......................................... (90,832) 7.28
Forfeited......................................... (30,634) 9.15
---------
BJ's options outstanding at January 31, 1998........ 4,756,362 9.48
Fiscal year ended January 30, 1999:
Granted........................................... 1,181,182 18.19
Exercised......................................... (492,174) 6.86
Forfeited......................................... (53,248) 13.52
---------
BJ's options outstanding at January 30, 1999........ 5,392,122 11.58
Fiscal year ended January 29, 2000:
Granted........................................... 698,708 28.51
Exercised......................................... (928,522) 8.31
Forfeited......................................... (19,434) 17.11
---------
BJ's options outstanding at January 29, 2000........ 5,142,874 14.45
=========
Exercisable at:
January 31, 1998.................................. 2,275,436 7.17
January 30, 1999.................................. 2,750,178 8.35
January 29, 2000.................................. 2,913,984 10.08
Weighted-average fair value of options granted dur-
ing the year:
Fiscal year ended January 31, 1998................ 6.17
Fiscal year ended January 30, 1999................ 7.21
Fiscal year ended January 29, 2000................ 13.20
</TABLE>
Additional information related to stock options outstanding at January 29,
2000 is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- --------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Exercise Prices Outstanding Price Life (yrs.) Exercisable Price
------------------------ ----------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.37 - $ 9.45......... 1,734,593 $ 7.63 4.8 1,732,171 $ 7.62
$10.22 - $15.06......... 1,596,956 13.12 6.8 937,338 12.50
$18.06 - $29.75......... 1,811,325 22.17 9.0 244,475 18.20
--------- ---------
$ 5.37 - $29.75......... 5,142,874 14.45 6.9 2,913,984 10.08
========= =========
</TABLE>
As of January 29, 2000 and January 30, 1999, respectively, 2,635,708 and
1,314,982 shares were reserved for future stock awards under the Company's
stock incentive plans.
27
<PAGE>
G. Earnings Per Share
The following details the calculation of earnings per share for the last
three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
--------------- --------------- ---------------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C>
Income before cumulative effect
of accounting principle
changes....................... $ 111,149 $ 81,805 $ 68,267
Less: Preferred stock divi-
dends......................... 25 25 25
--------------- --------------- ---------------
Income available to common
stockholders.................. $ 111,124 $ 81,780 $ 68,242
=============== =============== ===============
Weighted-average number of
common shares outstanding,
used for basic computation.... 73,657,016 74,804,538 74,962,346
Plus: Incremental shares from
assumed conversion of stock
options....................... 1,734,473 1,291,338 525,452
--------------- --------------- ---------------
Weighted-average number of
common and dilutive potential
common shares outstanding..... 75,391,489 76,095,876 75,487,798
=============== =============== ===============
Basic earnings per share....... $ 1.51 $ 1.09 $ 0.91
=============== =============== ===============
Diluted earnings per share..... $ 1.47 $ 1.07 $ 0.90
=============== =============== ===============
</TABLE>
Options to purchase a total of 589,700 shares at an exercise price of
$29.75 were outstanding at January 29, 2000, but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares during the year then ended.
H. Income Taxes
Through July 26, 1997, the Company was included in the consolidated federal
income tax returns of Waban and was charged or credited with its proportionate
share of the consolidated income tax provision. The Company files its own tax
returns as a separate taxpayer for periods subsequent to July 26, 1997.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Federal:
Current................................ $57,153 $41,696 $35,229
Deferred............................... 1,684 1,872 1,722
State:
Current................................ 10,592 9,326 7,414
Deferred............................... 742 70 (719)
------- ------- -------
Total income tax provision............... $70,171 $52,964 $43,646
======= ======= =======
</TABLE>
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rates..... 35% 35% 35%
State income taxes, net of federal tax
benefit............................... 4 4 4
--- --- ---
Effective income tax rates............. 39% 39% 39%
=== === ===
</TABLE>
28
<PAGE>
Significant components of the Company's deferred tax assets and liabilities
as of January 29, 2000 and January 30, 1999 are as follows:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................ $12,122 $13,300
Rental step liabilities............................ 4,770 4,534
Compensation and benefits.......................... 5,519 4,925
Other.............................................. 4,268 3,028
------- -------
Total deferred tax assets........................ 26,679 25,787
------- -------
Deferred tax liabilities:
Accelerated depreciation--property................. 24,267 22,240
Real estate taxes.................................. 2,047 1,675
Other.............................................. 2,732 1,813
------- -------
Total deferred tax liabilities................... 29,046 25,728
------- -------
Net deferred tax assets (liabilities)................ $(2,367) $ 59
======= =======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting deferred tax liabilities and future
taxable income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
I. Pensions
The Company participated in the Waban Inc. Retirement Plan, a non-
contributory defined benefit retirement plan covering full-time employees who
had attained twenty-one years of age and had completed one year of service.
Effective July 26, 1997, this plan was terminated. The Company recorded a pre-
tax charge applicable to its participants of $1,521,000 in 1998 when the plan
was settled through lump-sum cash payments and through the purchase of
nonparticipating annuity contracts. No benefits had accrued under this plan
since July 4, 1992, when it was frozen. The Company's expense under this plan
amounted to $34,000 in 1997.
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the tables which follow present
disclosures for the Waban plan.
Net periodic pension benefit cost included the following components:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------
January 30, January 31,
1999 1998
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Service cost......................................... $ -- $ 149
Interest cost........................................ -- 463
Expected return on assets............................ -- (593)
Amortization of unrecognized loss.................... -- 41
Loss due to settlement of plan....................... 2,892 --
------ -----
Net pension cost..................................... $2,892 $ 60
====== =====
Discount rate used to determine cost................. 5.99% 7.25%
Expected long-term rate of return on assets.......... -- 9.00%
</TABLE>
29
<PAGE>
The following tables present reconciliations of the projected benefit
obligation (PBO) and plan assets for the fiscal year ended January 30, 1999
(dollars in thousands):
<TABLE>
<S> <C>
Reconciliation of PBO:
PBO at beginning of year.......................................... $ 7,597
Service cost...................................................... --
Interest cost..................................................... --
Actuarial losses.................................................. 1,528
Benefits and expenses paid........................................ (9,125)
-------
PBO at end of year................................................ $ --
=======
Reconciliation of plan assets:
Fair value of plan assets at beginning of year.................... $ 7,869
Actual return on plan assets...................................... 213
Employer contributions............................................ 1,043
Benefits and expenses paid........................................ (9,125)
-------
Fair value of plan assets at end of year.......................... $ --
=======
</TABLE>
Effective October 1, 1997, assets and liabilities applicable to the
Company's employees in Waban's 401(k) Savings Plans were transferred to BJ's
own 401(k) Savings Plans. Under these plans, participating employees may make
pre-tax contributions up to 15% of covered compensation. The Company matches
employee contributions at 100% of the first one percent of covered compensation
and 50% of the next four percent. The Company's expense under these plans was
$2,657,000, $2,471,000 and $2,382,000 in 1999, 1998 and 1997, respectively.
As of the spin-off, liabilities related to the Company's employees in
Waban's non-contributory defined contribution retirement plan for certain key
employees were transferred to the Company, which established its own similar
plan. Under this plan, the Company funds annual retirement contributions for
the designated participants, on an after-tax basis. For the last three years,
the Company's contributions equaled 5% of the participants' base salary.
Participants become fully vested in their contribution accounts at the end of
the fiscal year in which they complete four years of service. The Company's
expense under this plan was $856,000, $718,000 and $650,000 in 1999, 1998 and
1997, respectively.
J. Postretirement Medical Benefits
As of the spin-off, liabilities related to the Company's employees in
Waban's defined benefit postretirement medical plan were transferred to the
Company, which established its own similar plan. This plan covers employees and
their spouses who retire after age 55 with at least 10 years of service, who
are not eligible for Medicare, and who participated in a Company-sponsored
medical plan. Amounts contributed by retired employees under this plan are
based on years of service prior to retirement. The plan is not funded.
Net periodic postretirement medical benefit cost included the following
components:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost........................... $165 $147 $108
Interest cost.......................... 62 50 36
Amortization of unrecognized loss...... 8 6 --
---- ---- ----
Net periodic postretirement benefit
cost.................................. $235 $203 $144
==== ==== ====
Discount rate used to determine cost... 6.25% 6.75% 7.25%
</TABLE>
30
<PAGE>
The following table sets forth the funded status of the Company's
postretirement medical plan and the amount recognized in the balance sheets at
January 29, 2000 and January 30, 1999:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Unfunded accumulated postretirement benefit obliga-
tion (APBO)....................................... $1,081 $ 979
Unrecognized net loss.............................. (50) (179)
------ -----
Accrued postretirement benefit cost included in
balance sheets.................................... $1,031 $ 800
====== =====
Discount rate used to value APBO................... 7.75 % 6.25 %
Weighted-average health care cost trend rate for
valuing year-end obligations:
Initial trend rate............................... 7.00 % 7.00 %
Ultimate trend rate.............................. 5.00 % 4.50 %
Year ultimate trend rate to be attained.......... 2003 2004
</TABLE>
The following tables present reconciliations of the APBO and plan assets for
the fiscal years ended January 29, 2000 and January 30, 1999:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Reconciliation of APBO:
APBO at beginning of year......................... $ 979 $ 670
Service cost...................................... 165 147
Interest cost..................................... 62 50
Contributions by plan participants................ 6 4
Actuarial (gains) losses.......................... (121) 127
Benefits paid..................................... (10) (19)
------ -----
APBO at end of year............................... $1,081 $ 979
====== =====
Reconciliation of plan assets:
Fair value of plan assets at beginning of year.... $ -- $ --
Employer contributions............................ 4 15
Contributions by plan participants................ 6 4
Benefits paid..................................... (10) (19)
------ -----
Fair value of plan assets at end of year.......... $ -- $ --
====== =====
</TABLE>
The following table sets forth the impact of changes in the assumed health
care cost trend rates for the fiscal year ended January 29, 2000:
<TABLE>
<CAPTION>
Dollars in
Thousands
----------
<S> <C>
Impact of 1% increase in health care cost trend on:
Aggregate of service and interest costs......................... $ 30
APBO at end of year............................................. 131
Impact of 1% decrease in health care cost trend on:
Aggregate of service and interest costs......................... $ (26)
APBO at end of year............................................. (117)
</TABLE>
31
<PAGE>
K. Accrued Expenses and Other Current Liabilities
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Employee compensation.............................. $ 26,617 $ 19,689
Deferred membership fee income..................... 40,632 35,246
Sales and use taxes, self-insurance reserves, rent,
utilities, advertising and other.................. 70,392 67,016
-------- --------
$137,641 $121,951
======== ========
</TABLE>
L. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ------------ ----------- ------------
(Dollars in Thousands except Per Share Amounts)
<S> <C> <C> <C> <C>
Fiscal year ended January 29,
2000:
Net sales.................. $ 858,761 $ 1,015,039 $ 990,638 $ 1,251,387
Total revenues............. 879,724 1,036,916 1,013,974 1,275,633
Gross earnings(a).......... 92,794 114,236 113,591 159,988
Net income................. 14,370 25,784 23,334 47,661
Per common share, diluted.. 0.19 0.34 0.31 0.63
Fiscal year ended January 30,
1999:
Net sales.................. $ 754,752 $ 859,599 $ 828,477 $ 1,034,018
Total revenues............. 772,228 877,690 847,812 1,054,451
Gross earnings(a).......... 78,649 96,011 91,259 132,245
Income before cumulative
effect of accounting
principle changes......... 8,847 20,863 14,428 37,667
Per common share, diluted.. 0.12 0.27 0.19 0.50
Net income (loss).......... (10,479) 20,863 14,428 37,667
Per common share, diluted.. (0.14) 0.27 0.19 0.50
</TABLE>
- --------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BJ's Wholesale Club, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of BJ's Wholesale Club, Inc. and its subsidiaries at January 29, 2000
and January 30, 1999, and the results of their operations and their cash flows
for each of the three years in the period ended January 29, 2000, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note A to the consolidated financial statements, the Company
changed its methods of accounting for membership fee revenue and preopening
expenses during the year ended January 30, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 28, 2000
[SIGNATURE OF PRICEWATERHOUSECOOPERS LLP]
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual
report have been prepared by and are the responsibility of management. The
financial statements were prepared in accordance with accounting principles
generally accepted in the United States and necessarily include amounts which
are based upon judgments and estimates made by management.
The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
accounting records may be relied upon for the preparation of financial
statements. The accounting and control systems are continually reviewed by
management and modified as necessary in response to changing business
conditions and the recommendations of the Company's internal auditors and
independent public accountants.
The Audit Committee, which is comprised of members of the Board of Directors
who are neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting control and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.
The financial statements have been audited by PricewaterhouseCoopers LLP,
whose opinion as to their fair presentation in accordance with accounting
principles generally accepted in the United States appears above.
[SIGNATURE OF FRANK D. FORWARD]
[SIGNATURE OF JOHN J. NUGENT]
John J. Nugent Frank D. Forward
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
February 28, 2000
33
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement no later than 120 days after the close of its fiscal
year ended January 29, 2000 (the "Proxy Statement"). The information required
by this Item and not given in Item 4A, Executive Officers of the Registrant, is
incorporated by reference from the Proxy Statement under "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934."
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the
Proxy Statement under "Compensation of Directors" and "Executive Compensation."
However, information under "Executive Compensation Committee's Report on
Executive Compensation" in this Proxy Statement is not so incorporated.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the
Proxy Statement under "Beneficial Ownership of Common Stock."
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
Proxy Statement under "Relationship with HomeBase; Conflicts of Interest."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The Financial Statements filed as part of this report are listed and
indexed on page 16. Schedules have been omitted because they are not applicable
or the required information has been included elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report.
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation(1)
3.2 Amended and Restated By-Laws(8)
4.1 Rights Agreement, dated as of July 10, 1997, between the Company and
First Chicago Trust Company of New York(2)
4.1a Amendment dated as of February 4, 1999 to Rights Agreement dated
July 10, 1997(7)
4.2 Specimen Certificate of Common Stock, $.01 par value per share(5)
10.1 Separation and Distribution Agreement, dated as of July 10, 1997
between the Company and Waban Inc.(3)
10.2 Services Agreement, dated as of July 28, 1997, between the Company
and Waban Inc.(3)
10.3 Tax Sharing Agreement, dated as of July 28, 1997, between the
Company and Waban Inc.(3)
10.4 Employee Benefits Agreement, dated as of July 28, 1997, between the
Company and Waban Inc.(3)
10.5 BJ's Wholesale Club, Inc. Management Incentive Plan*(4)
10.6 BJ's Wholesale Club, Inc. Growth Incentive Plan*(4)
10.7 BJ's Wholesale Club, Inc. 1997 Director Stock Option Plan, as
amended*(10)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
10.8 BJ's Wholesale Club, Inc. Executive Retirement Plan, as amended*
10.9 BJ's Wholesale Club, Inc. 1997 Replacement Stock Incentive Plan*(4)
10.10 BJ's Wholesale Club, Inc. 1997 Stock Incentive Plan, as amended*(9)
10.11 BJ's Wholesale Club, Inc. General Deferred Compensation Plan*(4)
10.12 Employment Agreement, dated as of July 28, 1997 with Herbert J.
Zarkin*(4)
10.13 Employment Agreement, dated as of July 28, 1997 with John J.
Nugent*(4)
10.13a Amended and Restated Change of Control Severance Agreement between
the Company and John J. Nugent*(10)
10.14 Employment Agreement, dated as of July 28, 1997 with Edward J.
Weisberger*(4)
10.15 Employment Agreement, dated as of July 28, 1997 with Frank D.
Forward*(4)
10.16 Employment Agreement, dated as of July 28, 1997 with Michael T.
Wedge*(4)
10.17 Employment Agreement, dated as of July 28, 1997 with Laura J.
Sen*(4)
10.18 Employment Agreement, dated as of July 28, 1997 with Sarah M.
Gallivan*(4)
10.19 Amended and Restated Form of Change of Control Severance Agreement
between the Company and officers of the Company*(10)
10.20 Form of Indemnification Agreement between the Company and officers
of the Company*(4)
10.21 BJ's Wholesale Club, Inc. Change of Control Severance Benefit Plan
for Key Employees, as amended*
10.22 Credit Agreement, dated July 9, 1997, among the Company and certain
banks(4)
10.22a First Amendment dated as of December 19, 1997 to Credit Agreement
dated July 9, 1997(6)
10.22b Second Amendment dated as of September 21, 1999 to Credit Agreement
dated July 9, 1997(10)
10.23 Indemnification Agreement, dated as of April 18, 1997, between the
Company and The TJX Companies, Inc.(5)
21.0 Subsidiaries of the Company
23.0 Consent of Independent Accountants
27.0 Financial Data Schedule
</TABLE>
- --------
* Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-8, (Commission File No. 333-31015)
(2) Incorporated herein by reference to the Company's Registration Statement
on Form 8-A, dated July 10, 1997 (Commission File No. 001-13143)
(3) Incorporated herein by reference to the Current Report on Form 8-K, dated
July 28, 1997, of HomeBase, Inc. (Commission File No. 001-10259)
(4) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 26, 1997 (Commission File No. 001-
13143)
(5) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (Commission File No. 333-25511)
35
<PAGE>
(6) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998 (Commission file No. 001-
13143)
(7) Incorporated herein by reference to the Company's Amendment No. 1 to
Registration Statement on Form 8-A/A, dated March 5, 1999 (Commission File
No. 001-13143)
(8) Incorporated herein by reference to the Company's Current Report on Form
8-K, dated as of April 7, 1999 (Commission File No. 001-13143)
(9) Incorporated herein by reference to the Company's Definitive Schedule 14A
filed April 23, 1999 (Commission File No. 001-13143)
(10) Incorporated herein by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 30, 1999 (Commission File No.
001-13143)
C. The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this Report.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BJ's Wholesale Club, Inc.
Dated: April 14, 2000
/s/ John J. Nugent
_____________________________________
John J. Nugent
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ John J. Nugent President Chief Executive Officer and
______________________________________ Director (Principal Executive Officer)
John J. Nugent
/s/ Herbert J. Zarkin Chairman of the Board and Director
______________________________________
Herbert J. Zarkin
/s/ Frank D. Forward Executive Vice President and Chief
______________________________________ Financial Officer (Principal Financial
Frank D. Forward and Accounting Officer)
/s/ S. James Coppersmith Director
______________________________________
S. James Coppersmith
/s/ Ronald R. Dion Director
______________________________________
Ronald R. Dion
/s/ Kerry L. Hamilton Director
______________________________________
Kerry L. Hamilton
/s/ Bert N. Mitchell Director
______________________________________
Bert N. Mitchell
/s/ Thomas J. Shields Director
______________________________________
Thomas J. Shields
/s/ Lorne R. Waxlax Director
______________________________________
Lorne R. Waxlax
/s/ Edward J. Weisberger Director
______________________________________
Edward J. Weisberger
</TABLE>
Dated: April 14, 2000
37
<PAGE>
EXHIBIT 10.8
(As amended through February 4, 1999)
BJ'S WHOLESALE CLUB, INC.
EXECUTIVE RETIREMENT PLAN, As Amended
BJ's Wholesale Club, Inc. (the "Company") desires to assure that it and its
subsidiaries will have the benefit of the continued service and experience of
certain of their key employees and to assure the Company and such employees of
the continuity of management in the event of a change of control of the Company,
and amends and restates this plan (the "Plan") to provide such assurances. This
amended and restated Plan is intended to cover as Participants those employees
of the Company who are designated or otherwise described as Participant in
Article 1.8.
ARTICLE 1. DEFINITIONS. The following terms as used in this Plan shall
-----------
have the following meanings:
1.1 "Code" shall mean the Internal Revenue Code of 1986, as the same
presently exists and as the same may hereafter be amended, or any successor
statute of similar purpose.
1.2 "Committee" shall mean the Executive Compensation Committee of the
Board of Directors of BJ's Wholesale Club, Inc.
1.3 "Company" shall mean BJ's Wholesale Club, Inc. and any wholly-owned
subsidiaries of BJ's Wholesale Club, Inc.
1.4 "Compensation" shall mean, for any Plan Year, a participant's
actual base salary earned during the Plan Year (before taking into account any
reduction in base salary pursuant to a salary reduction agreement under Section
401(k) or Section 125 of the Code). Any base salary that is deferred under a
non-qualified deferred compensation plan shall be included as "Compensation" for
the Plan Year in which the salary is earned but not included for the Plan Year
in which such deferred compensation is paid.
1.5 "Effective Date" shall mean July 27, 1997.
1.6 "Plan" shall mean the BJ's Wholesale Club, Inc. Executive
Retirement Plan, as herein set forth, including any and all amendments hereto
and restatements hereof.
1.7 "Plan Year" shall mean the Company's fiscal year.
1.8 "Participant" shall mean an employee of the Company selected by the
Committee to be a Participant in the Plan; provided, however, that the Committee
-----------------------
shall in no event designate as a Participant hereunder any employee who is not a
highly compensated employee or a member of the Company's select group of
management-level employees. The list of Participants
<PAGE>
is attached as "Schedule A" hereto, which list shall be periodically updated.
The Committee, in its sole and absolute discretion, may designate new
Participants and remove persons as Participants hereunder, provided, however,
------------------
that the Committee may not take any action so as to reduce a former
Participant's funded benefit hereunder. Notwithstanding the foregoing, all
Company employees as of the Effective Date who immediately prior to the
Effective Date were Waban Inc. employees who participated in the Waban Inc.
Executive Retirement Plan shall (i) be Participants in the Plan, and (ii) all
years of Service, Annual Retirement Contributions, accrued benefits and other
benefits, rights and features of or attributable to such employees under the
Waban Inc. Executive Retirement Plan shall continue in full force and effect and
carry over into this Plan.
1.9 "Annual Retirement Contribution" shall mean that amount the Company
contributes on behalf of each Participant pursuant to Article 2 hereof.
1.10 "Years of Service" shall mean each 52 or 53 week period of
uninterrupted service with the Company, including Waban Inc., and their
subsidiaries, ending on the last Saturday in January. A non-compensated leave of
absence shall be excluded from Years of Service.
1.11 "Change of Control" shall have the meaning set forth in Exhibit A.
ARTICLE 2. BENEFITS UNDER THIS PLAN
------------------------
2.1 Annual Retirement Contribution. The Committee shall determine, in
------------------------------
its sole discretion, at any time within two (2) months prior to the end of the
Plan Year but no later than two and-one-half (2-1/2) months following the close
of the Plan Year, the amount of Annual Retirement Contribution the Company will
make on behalf of each Participant, which amount shall be distributed or deemed
distributed (as the case may be) as soon as practicable after the Committee's
determination.
A Participant hereunder shall be entitled to an Annual Retirement
Contribution in a Plan Year only if the Participant was actively employed by the
Company on the last day of such Plan Year, unless the Participant's termination
------
of employment during the Plan Year occurred due to either the Participant's (i)
retirement on or after the attainment of age fifty-five (55), or (ii) disability
(as defined under the Company's long-term disability plan).
2.2 Amount of Annual Retirement Contribution. The Committee shall have
----------------------------------------
sole and absolute discretion to determine the amount of the Annual Retirement
Contribution; provided that the smallest Annual Retirement Contribution the
-------------
Committee may determine on behalf of each Participant shall be that amount
sufficient to provide the Participant with a benefit equal to three percent (3%)
of the Participant's Compensation on an "after-tax" basis, taking into account
the Participant's appropriate marginal tax bracket. The "after-tax" value of
the Annual Retirement Contribution is hereinafter referred to as the "After-Tax
Benefit".
2
<PAGE>
2.3 Investment of After-Tax Benefit. As a condition of being a
-------------------------------
Participant hereunder, each Participant agrees, understands and accepts that the
After-Tax Benefit will be used to fund an appropriate vehicle to provide
retirement income and benefit to the Participant (such as an insurance policy),
which such vehicle shall be chosen by the Committee. If the Committee chooses
an insurance program as said appropriate vehicle, then in the Committee's sole
discretion either: (i) the Participant shall apply the After-Tax Benefit to
purchase and maintain an individual policy (with the Participant as the owner
thereof), or (ii) the Committee shall, on behalf of the Participant, apply the
After-Tax Benefit to purchase and maintain an individual account (with the
Participant as the owner thereof) under a group policy.
The Committee reserves the right not to make Annual Retirement
Contributions on behalf of a Participant if it becomes aware or determines that
prior Annual Retirement Contributions are not being applied in accordance with
the terms and intent of this paragraph 2.3.
ARTICLE 3. FUNDING
-------
3.1 Four Year Rule. Notwithstanding anything to the contrary herein
--------------
contained or implied, other than the provisions of Section 3.5 hereof, including
Section 2.1 hereof, the Company will make payment in respect of a Participant's
Annual Retirement Contribution for a Plan Year only if the Participant has been
credited with at least four (4) Years of Service by, and is employed by the
Company at, the end of such Plan Year.
3.2 Treatment of Participants with Less Than Four Years of Service. If
--------------------------------------------------------------
a Participant hereunder is credited with less than four (4) Years of Service by
the end of the applicable Plan Year, the Participant will accrue the right to an
Annual Retirement Contribution for that Plan year, based on (i) the Annual
Retirement Contribution approved by the Committee for that Plan Year, and (ii)
the Participant's Compensation for that Plan Year.
In the Plan Year in which the Participant is first credited with four (4)
Years of Service, the Company will, in the time-frame determined in accordance
with Section 2.1 hereof, make an aggregate retirement contribution on behalf of
the Participant equal to: (i) the amount of the Annual Retirement Contribution
of such Plan Year, plus (ii) the Annual Retirement Contribution amounts the
Participant had accrued in the prior three (3) Plan Years, as determined
pursuant to the first sentence of this Section 3.2. The aggregate retirement
contribution shall be treated as provided in Section 2.3 hereof.
3.3 Forfeitures. If a Participant hereunder terminates employment with
-----------
the Company prior to being credited with four (4) years of Service, the
Participant shall forfeit the right to any benefit accrued hereunder.
3.4 Modification. By virtue of participating in this Plan, each
------------
Participant authorizes the Company to adjust the amounts of insurance for
whatever reason, such as to account for changes in salary, modifications in
benefit formulas, etc.
3
<PAGE>
3.5 Change of Control. Effective upon any Change of Control occurring
-----------------
after February 4, 1999 (as defined in Exhibit A to the Plan), a Participant will
be fully vested in any benefit accrued under this Plan and will no longer
forfeit any such accrued benefit upon a termination of employment. In addition,
with respect to the Plan Year in which the Change of Control occurs, each
Participant will receive an Annual Retirement Contribution for such Plan Year
equal to that percentage of the Participant's Compensation for such Plan Year
(annualizing the Participant's Compensation earned through the date upon which
the Change of Control occurs) which is the same as the average percentage of
Compensation contributed or accrued as the Annual Retirement Contribution for
each Participant for each of the three immediately preceding Plan Years (or, if
fewer, such number of Plan Years as the Participant has accrued an Annual
Retirement Contribution under this Plan). Within 60 days after such Change of
Control, the Company will contribute (a) the Annual Retirement Contribution for
the Plan Year in which the Change of Control occurs as described herein, and (b)
the Annual Retirement Contribution amounts any Participant had accrued in prior
Plan Years as a Participant which had not yet been distributed to or on behalf
of such Participant, to either (i) the investment vehicle to which the prior
Plan Year's distribution had been made under this Plan; or, at the election of
the Participant, (ii) to any other account which the Committee and the
Participant may choose, consistent with the goals of the Plan.
ARTICLE 4. EFFECT ON EMPLOYMENT RIGHTS. This Plan shall not constitute an
---------------------------
employment contract and nothing contained in this Plan shall confer upon the
Participant the right to be retained in the service of the Company nor limit the
right of the Company to discharge or otherwise deal with the Participant without
regard to the existence of this Plan.
ARTICLE 5. ADMINISTRATION.
--------------
5.1 Plan Administration. The authority to control and manage the
-------------------
operation and administration of the Plan shall be placed in the Committee. The
Committee shall have full power, discretion and authority to interpret, construe
and administer the Plan and any part thereof.
Subject to the limitations of this Plan, the Committee from time to time
may establish rules for the administration and interpretation of the Plan and
the transaction of its business. The determination of the Committee as to any
disputed question shall be conclusive.
The members of the Committee may authorize one or more of their number or
any officer of the Company to execute or deliver any instrument, make any
payment or perform any other act which the Plan authorizes or requires the
Committee to do.
The Committee may employ counsel and other agents and may procure such
clerical, accounting, actuarial, consulting and other services as it may require
in carrying out the provisions of the Plan.
4
<PAGE>
5.2 Indemnification. The Company shall indemnify and save harmless
---------------
each member of the Committee against all expenses and liabilities arising out of
membership on such Committee, excepting only expenses and liabilities arising
from such member's own gross negligence or willful misconduct, as determined by
the Board of Directors or outside counsel designated by the Board of Directors.
ARTICLE 6. AMENDMENT OR TERMINATION OF PLAN. The Plan may be amended,
--------------------------------
suspended or terminated in whole or in part at any time and from time to time by
the Committee. No such amendment, suspension or termination shall retroactively
impair or otherwise adversely affect the rights of any Participant to benefits
under this Plan that have been funded prior to the date of such amendment,
suspension or termination.
ARTICLE 7. NONASSIGNMENT. The right to benefits hereunder shall not be
-------------
assignable, and the Participant shall not be entitled to have such payments
commuted or made otherwise than in accordance with the provisions of the Plan.
ARTICLE 8. CONSTRUCTION.
------------
8.1 Heading and Captions. The headings and captions herein are provided
--------------------
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
8.2 Singular Includes Plural. Except where otherwise clearly indicated
------------------------
by context, the singular shall include the plural, and vice-versa.
ARTICLE 9. RELEVANT LAW. This Plan shall be construed and enforced in
------------
accordance with the laws of the Commonwealth of Massachusetts to the extent such
laws are not preempted by federal law.
5
<PAGE>
Exhibit A
Definition of Change of Control
-------------------------------
For the purposes of this Plan, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
6
<PAGE>
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
7
<PAGE>
Exhibit 10.21
(As amended through January 11, 2000)
BJ'S WHOLESALE CLUB, INC.
Change of Control Severance Benefit
Plan for Key Employees, as Amended
BJ's Wholesale Club, Inc. (the "Company") desires to assure that it and its
Subsidiaries (collectively, the "Employer") will have the benefit of the
continued service and experience of certain of their key employees and to assure
the Employer and such employees of the continuity of management of the Company
and the Employer in the event of a change of control of the Company, and adopts
this plan as amended and restated (the "Plan") to provide such assurances. This
Plan is intended to cover as Participants those employees of the Employer who
are designated or otherwise described as a Participant in Exhibit A, paragraph
(j).
1. Benefits Upon Change of Control.
--------------------------------
1.01 In General. Within 30 days following a Change of Control, whether or
----------
not a Participant's employment has been terminated, the Company shall pay to the
Participant the following in a lump sum:
(a) an amount equal to the product of (i) the "Target Bonus" under the
BJ's Wholesale Club, Inc. Management Incentive Plan or any other annual
incentive plan which is applicable to the Participant for the fiscal year
in which the Change of Control occurs and (ii) a fraction, the numerator of
which is the number of days in such fiscal year prior to the Change of
Control and the denominator of which is 365; and
(b) if the Participant is a participant in any long-range incentive
plan at the time of the Change of Control, the benefits and payment
provided for by the terms of such plan upon the occurrence of a Change of
Control.
1.02 Benefits Following a Qualified Termination. Participants whose
------------------------------------------
employment terminates in a Qualified Termination shall be entitled to the
following additional benefits:
(a) Within 30 days following the Participant's Date of Termination,
the Employer shall pay to the Participant an amount equal to the accrued
and unpaid portion of the Participant's Base Salary through the Date of
Termination.
(b) In addition to the amount described in paragraph (a) above, but
subject to paragraph (c) below, the Employer shall pay and/or provide to
the Participant all other benefits to which the Participant is entitled
upon termination of the Participant's employment as set forth in any
Company Severance Policy applicable to such Participant in existence
immediately prior to the Change of Control (or in existence on the Date of
Termination, if the benefits thereunder are greater), at the times and in
the manner described in such Severance Policy.
<PAGE>
(c) In addition to amounts described in paragraph (a) above, the
Employer shall pay in a single lump sum an amount equal to the
Participant's Base Salary, determined as hereinafter provided, multiplied
by the Applicable Number of Weeks, determined as provided on Exhibit B, to
any Participant who had been employed by the Employer for at least 12
months prior to the Date of Termination. The Base Salary payable under this
paragraph shall equal the Participant's Base Salary as in effect
immediately prior to the Change of Control or, if greater, the
Participant's Base Salary as in effect immediately prior to the Date of
Termination. The benefit described in this paragraph shall be paid in lieu
of the benefit described in paragraph (b) unless the benefit described in
paragraph (b) is greater, in which case the benefit described in paragraph
(b) shall be paid in lieu of the benefit described in this paragraph (c).
(d) The Employer shall arrange and pay for continuation of medical and
life insurance benefits for the Participant (which shall be in amount and
terms substantially comparable to those in effect immediately prior to the
Change of Control) for a period commencing on the Date of Termination and
continuing for the Applicable Number of Weeks. To the extent the
Participant, immediately prior to the Change of Control, was responsible
for paying a portion of the premiums with respect to such insurance
benefits, the Participant shall be required to continue to pay such amount.
1.03 Coordination With Certain Tax Rules.
-----------------------------------
(a) Notwithstanding any other provision of this Plan, in the event
that the Company undergoes a Change in Ownership or Control (as defined
below), the Company shall not be obligated to provide to the Participant a
portion of any "Contingent Compensation Payments" that the Participant
would otherwise be entitled to receive to the extent necessary to eliminate
any "excess parachute payments" (as defined in Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended (the "Code")) for the
Participant. For purposes of this Section 1.03, the Contingent Compensation
Payments so eliminated shall be referred to as the "Eliminated Payments"
and the aggregate amount (determined in accordance with Proposed Treasury
Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the
Contingent Compensation Payments so eliminated shall be referred to as the
"Eliminated Amount."
(b) For purposes of this Section 1.03, the following terms shall have
the following respective meanings:
(i) "Change in Ownership or Control" shall mean a change in the
ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company determined in
accordance with Section 280G(b)(2) of the Code.
(ii) "Contingent Compensation Payments" shall mean any payment
(or benefit) in the nature of compensation that is made or made
available (under this Agreement or otherwise) to a "disqualified
individual" (as defined in Section 280G(c) of the Code) and that is
contingent (within the meaning of Section
2
<PAGE>
280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of
the Company.
(c) Any payments or other benefits otherwise due to the Participant
following a Change in Ownership or Control that could be characterized (as
reasonably determined by the Company) as Contingent Compensation Payments
shall not be made until the determination, pursuant to this Section
1.03(c), of which Contingent Compensation Payments shall be treated as
Eliminated Payments. Within 30 days after each date on which the
Participant first becomes entitled to receive (whether or not then due) a
Contingent Compensation Payment relating to such Change in Ownership or
Control, the Company shall determine and notify the Participant (with
reasonable detail regarding the basis for its determinations) (i) which of
such payments and benefits constitute Contingent Compensation Payments and
(ii) the Eliminated Amount. Within 30 days after delivery of such notice to
the Participant, the Participant shall notify the Company which Contingent
Compensation Payments, or portions thereof (the aggregate amount of which,
determined in accordance with Proposed Treasury Regulation Section 1.280G-
1, Q/A-30 or any successor provision, shall be equal to the Eliminated
Amount), shall be treated as Eliminated Payments. In the event that the
Participant fails to notify the Company pursuant to the preceding sentence
on or before the required date, the Contingent Compensation Payments (or
portions thereof) that shall be treated as Eliminated Payments shall be
determined by the Company in its absolute discretion.
(d) The provisions of this Section 1.03 are intended to apply to any
and all payments or benefits available to the Participant under this Plan
or any other agreement or plan of the Company under which the Participant
receives Contingent Compensation Payments.
1.04 Definitions. The terms defined in Exhibits A and C hereto are used
-----------
herein as so defined.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
-------------------------------------------------------------------
Withholding.
-----------
2.01 Noncompetition. Upon a Change of Control, any agreement by a
--------------
Participant not to engage in competition with the Employer subsequent to the
termination of his employment, whether contained in an employment contract or
other agreement, shall no longer be effective.
2.02 No Duty to Mitigate Damages. A Participant's benefits under this
---------------------------
Plan shall be considered severance pay in consideration of his past and future
services, and his entitlement thereto shall neither be governed by any duty to
mitigate his damages by seeking further employment nor offset by any
compensation he may receive from future employment.
2.03 Other Severance Payments. In the event that the Participant has an
------------------------
employment contract or any other agreement with the Employer which entitles the
Participant to severance payments upon the termination of his employment with
the Employer (other than payments to be made under the Company's Severance
Policy as described in Section 1.02(b)), the amount of any
3
<PAGE>
such severance payments shall be deducted from the payments to be made to the
Participant under this Plan so as to avoid duplication of severance benefits.
2.04 Withholding. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Employer hereunder to a Participant shall be subject
to the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Employer may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Notice of Termination. During a Standstill Period, a Participant's
---------------------
employment may be terminated by the Employer only upon 30 days' written notice
to the Participant.
4. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Employer: c/o BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Attention: Treasurer
To the Participant: At his home address,
as last shown on the
records of the Employer
5. Severability. In the event that any provision of this Plan shall be
------------
determined to be invalid or unenforceable, such provision shall be enforceable
in any other jurisdiction in which valid and enforceable. In any event the
remaining provisions shall remain in full force and effect to the fullest extent
permitted by law.
6. Continued Employment. This Plan shall not give a Participant any
--------------------
right of continued employment or any right to any compensation or benefits from
the Company or the Employer except the benefits specifically provided for herein
and shall not limit the Employer's right to change the terms of or terminate the
Participant's employment, with or without Cause, at any time other than during a
Standstill Period, except as may be otherwise provided in a written employment
agreement between the Participant and the Employer.
7. Amendment and Termination. This Plan shall be effective as of the
-------------------------
Effective Date through March 31, 2002; provided that on March 31, 2000 and each
March 31 thereafter, the termination date provided in this clause shall be
automatically extended for an additional year (the "Date") (so that on March 31,
2000 the Date shall become March 31, 2003, and so on) unless, not later than 90
days prior to any March 31, the Company acting by its Board of Directors elects
not to renew this Plan. Notwithstanding the foregoing, this Plan and the
employee benefits described herein may be amended or terminated as to all
Participants or as to any specific Participant at any time by the Company acting
by its Board of Directors and shall be automatically terminated with respect to
any specific Participant upon the first to occur of the
4
<PAGE>
following: (i) he no longer has the title "Senior Vice President," "Vice
President," "Assistant Vice President," "Manager of," "Buyer," or "Regional
Manager" or is no longer a "Manager" or a "staff person in Grades 27-32" (or
such other management title or category as the Board of Directors of the Company
may from time to time specify for purposes of Exhibit B, paragraph (j)) or (ii)
his employment is terminated or (iii) if he is employed by a Subsidiary of the
Company, the Subsidiary either ceases to be a Subsidiary of the Company or sells
or otherwise disposes of all or substantially all of its assets; provided that
no such amendment or termination which occurs during a Standstill Period shall
terminate or affect the existing rights of any Participant hereunder except that
all such rights shall terminate as to a Participant employed by a Subsidiary
which has either ceased to be a Subsidiary of the Company or sold all or
substantially all of its assets during a Standstill Period unless the employment
of the Participant shall have been terminated in a Qualified Termination within
90 days of such event.
8. Legal Fees and Expenses. The Employer shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. incurred by a Participant in reasonably contesting or disputing that
the termination of his employment during a Standstill Period is for Cause or
other than for good reason (as defined in Exhibit A, paragraph (k)) or in
obtaining any right or benefit to which the Participant is entitled under this
Plan. Any amount payable under this Plan that is not paid when due shall accrue
interest at the prime rate as from time to time in effect at BankBoston (or any
successor thereto, or if there is no successor entity thereto, such other
commercial banking institution as shall be selected by the Executive
Compensation Committee of the Company's Board of Directors) until paid in full.
9. Binding on Successors. This Plan shall be binding on any successor to
---------------------
all or substantially all of the Company's business or assets.
10. Governing Law. This Plan shall be governed by the laws of the
-------------
Commonwealth of Massachusetts.
5
<PAGE>
EXHIBIT A
Definitions
-----------
The following terms as used in this Plan and Exhibits shall have the
following meanings:
(a) "Base Salary" shall mean the Participant's weekly base salary,
exclusive of any bonus or other benefits he may receive; provided, however, that
-------- -------
for purposes of Section 1.02(c) only, Base Salary shall include the dollar
amount of any auto allowance.
(b) "Cause" shall mean, with respect to any Participant, (i) dishonesty,
(ii) conviction of a felony, (iii) gross neglect of duties (other than as a
result of Incapacity, Disability or death), or (iv) conflict of interest;
provided that for purpose of clauses (iii) or (iv) any such gross neglect or
conflict shall continue for 30 days after the Company gives written notice to
the Participant requesting the cessation of such gross neglect or conflict, as
the case may be.
In respect of any termination during a Standstill Period, the Participant
shall not be deemed to have been terminated for Cause until the later to occur
of (i) the 30th day after notice of termination is given and (ii) the delivery
to the Participant of a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the Company's directors at a meeting called
and held for that purpose (after reasonable notice to the Participant), and at
which the Participant together with his counsel was given an opportunity to be
heard, finding that the Participant was guilty of conduct described in the
definition of "Cause" above, and specifying the particulars thereof in detail;
provided, however, that the Company may suspend the Participant and withhold
- -------- -------
payment of his Base Salary from the date that notice of termination is given
until the earliest to occur of (a) termination of the Participant for Cause
effected in accordance with the foregoing procedures (in which case the
Participant shall not be entitled to his Base Salary for such period), (b) a
determination by a majority of the Company's directors that the Participant was
not guilty of the conduct described in the definition of "Cause" above (in which
case the Participant shall be reinstated and paid any of his previously unpaid
Base Salary for such period), or (c) the 90th day after notice of termination is
given (in which case the Participant shall be reinstated and paid any of his
previously unpaid Base Salary for such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit C.
(d) "Company" shall mean BJ's Wholesale Club, Inc. or any successor.
(e) "Date of Termination" shall mean the date on which the Participant's
employment is terminated.
(f) "Disability" shall have the meaning given it in the Company's long-term
disability plan. A Participant's employment shall be deemed to be terminated
for Disability on the date on which the Participant is entitled to receive long-
term disability compensation pursuant to such long-term disability plan.
6
<PAGE>
(g) "Employer" shall have the meaning set forth in the first paragraph of
this Plan.
(h) "Effective Date" shall mean January 11, 2000.
(i) "Incapacity" shall mean a disability (other than Disability within the
meaning of paragraph (f) of this Exhibit A) or other impairment of health that
renders the Participant unable to perform his duties to the satisfaction of the
Executive Compensation Committee of the Board of Directors of the Company. If
by reason of Incapacity the Participant is unable to perform his duties for at
least six months in any 12-month period, upon written notice by the Company to
the Participant the employment of the Participant shall be deemed to have been
terminated by reason of Incapacity.
(j) "Participant" shall mean any employee of the Employer who has the
management title "Senior Vice President," "Vice President," "Assistant Vice
President," "Manager of," "Buyer," or "Regional Manager" and other Managers and
staff personnel who are ranked at Grades 27 through 32 (or such other management
title or category as the Board of Directors of the Company may from time to time
specify, with reference to this definition), and who does not have a separate
severance agreement with the Employer relating to a Change of Control. The
Company shall keep a current list of the names of all Participants.
(k) "Qualified Termination" shall mean the termination of the Participant's
employment during a Standstill Period (i) by the Employer other than for Cause,
or (ii) by the Participant for good reason, or (iii) by reason of death,
Incapacity or Disability.
For purposes of this definition, termination for "good reason" shall mean,
with respect to any Participant, the voluntary termination by the Participant of
his employment (A) within 120 days after the occurrence without the
Participant's express written consent of any of the events described in clauses
(I), (II), (III), (IV), (V) or (VI) below, provided that the Participant gives
notice to the Company at least 30 days in advance requesting that the situation
described in those clauses be remedied, and the situation remains unremedied
upon expiration of such 30-day period; or (B) within 120 days after the
occurrence without the Participant's express written consent of the events
described in clauses (VII) or (VIII) below, provided that the Participant gives
notice to the Company at least 30 days in advance:
(I) the assignment to him of any duties inconsistent with his positions,
duties, responsibilities, and status with the Employer immediately
prior to a Change of Control, or a change in the Participant's titles
or offices as in effect immediately prior to a Change of Control, or
any removal of the Participant from or any failure to reelect him to
such positions, except in connection with the termination of the
Participant's employment by the Employer for Cause or by the
Participant other than for good reason; or
(II) if the Participant's rate of Base Salary for any fiscal year is less
than 100 percent of the rate of Base Salary paid to the Participant in
the completed fiscal year immediately preceding the Change of Control,
or if the Participant's total cash compensation opportunities,
including salary and incentives, for any fiscal year
7
<PAGE>
are less than 100 percent of the total cash compensation opportunities
made available to the Participant in the completed fiscal year
immediately preceding the Change of Control, unless any such reduction
represents an overall reduction of no more than 5 percent of the rate
of Base Salary paid or cash compensation opportunities made available,
as the case may be, and affects all other employees having similar job
titles (it being the Employer's burden to establish this fact); or
(III) the failure of the Employer to continue in effect any benefit or
perquisite, or any pension, life insurance, medical insurance or
disability plan in which the Participant was participating immediately
prior to a Change of Control (the "Benefits", individually, a
"Benefit") unless the Employer provides the Participant substantially
similar Benefits, or the taking of any action by the Employer that
would adversely affect the Participant's participation in or
materially reduce any of the Participant's Benefits or deprive the
Participant of any material Benefit enjoyed by the Participant
immediately prior to a Change of Control, unless any elimination or
reduction of any Benefit, or any adverse effect on Participant's
participation has an aggregate value equal to no more than 5 percent
of the Benefits, and affects all other employees having similar job
titles or in similar grades (it being the Employer's burden to
establish this fact); or
(IV) any purported termination of the Participant's employment by the
Employer for Cause during a Standstill Period which is not effected in
compliance with paragraph (b) of this Exhibit; or
(V) any relocation of the Participant of more than 40 miles from the place
where the Participant was located at the time of the Change of
Control; or
(VI) any other breach by the Company with respect to the Participant of any
provision of this Plan; or
(VII) the Company sells or otherwise disposes of, in one transaction or a
series of related transactions, assets or earning power aggregating
more than 30 percent of the assets (taken at asset value as stated on
the books of the Company determined in accordance with generally
accepted accounting principles consistently applied) or earning power
of the Company (on an individual basis) or the Company and its
Subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit C); or
(VIII) if the Participant is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a subsidiary of the Company or sells or
otherwise disposes of, in one transaction or a series of related
transactions, assets or earning power aggregating more than 30 percent
of the assets (taken at asset value as stated on the books of the
Subsidiary determined in accordance with generally accepted
8
<PAGE>
accounting principles consistently applied) or earning power of such
Subsidiary (on a non-consolidated basis) or such Subsidiary and its
subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit C).
(l) "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
(m) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power of
all classes of stock or with respect to determining the Subsidiaries of a
Subsidiary in paragraph (k) (VIII) of this Exhibit A, shall mean any corporation
in which the Subsidiary owns, directly or indirectly, 50 percent or more of the
total combined power of all classes of stock.
9
<PAGE>
EXHIBIT B, as amended
Determination of Benefits Following a Qualified Termination
-----------------------------------------------------------
The "Applicable Number of Weeks" with respect to a Participant is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
If the Participant's title immediately prior to the The Applicable Number of Weeks is...
Change of Control is...
<S> <C>
-------------------------------------------------------------------------------------------------
Senior Vice President 78 weeks
-------------------------------------------------------------------------------------------------
Vice President 65 weeks
-------------------------------------------------------------------------------------------------
Assistant Vice President 52 weeks
-------------------------------------------------------------------------------------------------
Manager of The greater of 39 weeks or 4 weeks per
year of service (but no more than 52
weeks)
-------------------------------------------------------------------------------------------------
Buyer The greater of 39 weeks or 4 weeks per
year of service (but no more than 52
weeks)
-------------------------------------------------------------------------------------------------
Regional Manager The greater of 39 weeks or 4 weeks per
year of service (but no more than 52
weeks)
-------------------------------------------------------------------------------------------------
Other Managers and Staff Grades 27-32 The greater of 39 weeks or 4 weeks per
year of service (but no more than 52
weeks)
-------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
EXHIBIT C
Definition of Change of Control
-------------------------------
For the purposes of this Plan, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
11
<PAGE>
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation and (iii) at least half of the members of the board of directors of
the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
12
<PAGE>
Exhibit 21.0
SUBSIDIARIES
The following is a list of Subsidiaries of BJ's Wholesale Club, Inc. as of March
31, 2000:
1. BJ's Wholesale Club, Inc. owns 100% of the issued shares of common stock of
the following corporations:
Jurisdiction
------------
Natick Security Corp. Massachusetts
BJ's Northeast Operating Corp. Delaware
BJ's Export Inc. Barbados
BJ's MA Distribution Center, Inc. Massachusetts
BJ's PA Distribution Center, Inc. Pennsylvania
Mormax Beverages Corp. Delaware
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
Mormax Corporation Massachusetts
Natick First Realty Corp. Connecticut
Natick Realty, Inc. Maryland
Natick Realty Holdings, Inc. Maryland
Natick 1998 Realty Holdings, Inc. Maryland
Strathmore Holdings, Inc. Delaware
2. Strathmore Holdings, Inc. is the sole general partner of:
Jurisdiction
------------
Strathmore Partners LP Delaware
3. Natick Realty, Inc. owns 100% of the issued shares of capital stock of the
following corporations:
Jurisdiction
------------
Natick Second Realty Corp. Massachusetts
Natick NJ Flemington Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
Natick MA Realty Corp. Massachusetts
Natick VA Realty Corp. Virginia
Natick NY 1992 Realty Corp. New York
Natick Portsmouth Realty Corp. New Hampshire
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
Natick CT Realty Corp. Connecticut
Natick ME 1995 Realty Corp. Maine
Natick NY 1995 Realty Corp. New York
Natick NH 1994 Realty Corp. New Hampshire
Natick MA 1995 Realty Corp. Massachusetts
Natick Yorktown Realty Corp. New York
Natick Waterford Realty Corp. Connecticut
Natick Sennett Realty Corp. New York
Natick Bowie Realty Corp. Maryland
Natick NY College Point Realty Corp. New York
Mercer Mortgage Holdings, Inc. Delaware
Natick SC Greenville Realty Corp. South Carolina
Natick NC Mooresville Realty Corp. North Carolina
Natick MD Lexington Park Realty Corp. Maryland
4. Natick Realty, Inc. owns 100% of the outstanding shares of the following
business trusts:
Jurisdiction
------------
Natick PA Realty Business Trust Pennsylvania
Natick PA 1995 Realty Business Trust Pennsylvania
Natick Lancaster Realty Business Trust Pennsylvania
Natick PA Plymouth Realty Business Trust Pennsylvania
<PAGE>
Exhibit 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-31015) and Form S-8 (No. 333-79881) of BJ's
Wholesale Club, Inc. of our report dated February 28, 2000 relating to the
financial statements, which appear in this Form 10-K.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BJ'S
WHOLESALE CLUB, INC. CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE
SHEETS FILED WITH THE FORM 10-K FOR THE YEAR ENDED JANUARY 29, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 60,437
<SECURITIES> 0
<RECEIVABLES> 51,998
<ALLOWANCES> 0
<INVENTORY> 446,771
<CURRENT-ASSETS> 580,683
<PP&E> 684,867
<DEPRECIATION> 203,601
<TOTAL-ASSETS> 1,073,448
<CURRENT-LIABILITIES> 447,207
<BONDS> 2,050
0
0
<COMMON> 744
<OTHER-SE> 576,654
<TOTAL-LIABILITY-AND-EQUITY> 1,073,448
<SALES> 4,115,825
<TOTAL-REVENUES> 4,206,247
<CGS> 3,725,638
<TOTAL-COSTS> 3,725,638
<OTHER-EXPENSES> 303,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,785)
<INCOME-PRETAX> 181,320
<INCOME-TAX> 70,171
<INCOME-CONTINUING> 111,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,149
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.47
</TABLE>
